Land Securities has launched an offer to buy back up to £600m of bonds in return for cash in order to reduce its borrowing costs.
The amount of take-up on the offer, made to investors who hold £1.3bn of bonds, will be confirmed on 1 February. The bonds would likely be replaced with medium- to long-term fixed debt, priced considerably lower than the coupon of the bonds owing to the current low interest rate environment.
The move would also push out the average maturity of Land Securities’ debt.
The offer relates to four bond issuances due to mature between 2022 and 2027 and pay coupons ranging from 4.88% to 5.43% until two years before maturity when they convert to a floating rate equal to LIBOR plus an increased margin.
Land Securities has been managing its debt aggressively over the past few years and the group’s loan-to-value stood at 25.5% as of 30 September 2016 with an average term of nine years. The company has already bought back £1bn of bonds since 2010 ahead of their maturity and in 2015 it secured a £1.3bn revolving credit facility with eight banks at a margin of just 75 bps.
A note from Jefferies said that the company could use its RCF to pay back the bonds but it “would reduce Land Securities’ ability to invest quickly into potentially distressed assets if Brexit does lead to dysfunctional markets, while also reducing the average maturity of the debt”.
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