A sense of adventure is beginning to infect the finance directors of some of our major property companies. With the debenture window steamed up by the jolt in interest rates, and the equity rights issue an uncertain route for companies to tread, new ways of raising funds are being tried.
In the past weeks we have seen a couple of convertibles issued by way of rights, but that is a tried and tested fund-raising technique which makes few demands on the market’s imagination.
This week, however, MEPC produced something completely different. It was, to use the jargon, a £200m “syndicated underwritten tender panel facility”, arranged for MEPC by N M Rothschild & Sons.
The facility works as follows: some 40 banks have been collected together to form a “tender panel”, rather in the way that selected builders and contractors are listed as tenderers for contracts.
The panel is divided into three. The first section is the underwriting banks, the second the advance tender panel banks and the third the Euronote tender panel banks.
MEPC has arranged with the underwriting banks, through Rothschild, that they will make available up to £200m on an unsecured basis, for a seven-year term, to be drawn either as advances or by the issue of Euronotes.
When MEPC decides it wishes to draw down funds, it chooses whether to issue Euronotes or to seek advances. In either case, the banks on the tender panels submit tenders for the loan, at any price they care to name within set limits, and for part or the whole of the amount required by MEPC.
MEPC can then select the cash on the terms which suit it best. If, however, no tenders are received or the amount tendered does not meet the amount MEPC wishes to draw, then MEPC falls back on the underwriting group for the money, again at a price related to the London Interbank Rates.
The MEPC arrangements came hard on the heels of a broadly similar tender panel “multiple option facility” organised for Wates City of London Properties by First Interstate Capital Markets and, again, Rothschild.
The Wates deal is for seven years and is for £56m on an unsecured basis. The maximum interest rate payable will not exceed 0.30% above sterling LIBOR, slightly higher than the 0.25% maximum negotiated by MEPC.
The Wates facility will initially comprise a sterling advances tender panel of 19 banks, who will bid competitively for successive short-term sterling advances of between one month and one year.
Wates City may subsquently add other options to the facility at a later date, among which is the option to issue Eurocommercial paper through a tender panel. The MEPC facility has the Euronote option built in from the beginning.
Like the MEPC facility, the Wates panel is back-stopped by a syndicate of five banks who are committed to fund Wales over the full seven-year period — First Interstate Bank of California, Rothschild, Standard Chartered Bank, Allied Irish Investment Bank and Postipankki (UK).
Both property companies have first-class asset portfolios, which is a comfort to lenders even on an unsecured basis, and expect to cut their borrowing costs through use of the competitive tender.
The £56m being raised by Wates will repay nearly all the company’s existing debt and fund future development projects.
MEPC says the £200m will enable it to refinance some of its present sterling and overseas currency funding arrangements on more advantageous terms and provide a medium-term finance facility for growth.
MEPC has a substantial development programme. Current development properties total £132m and at the last balance sheet date there were commitments to spend a further £167m.
The tender panel facility will be a fund-raising option available only to the top property companies, but is likely nevertheless to become a quickly established medium.
