Selvaag Bolig holders vote to amend NOK 500 million bonds due 2018

By Susanna Moon

Chicago, Nov. 21 – Selvaag Bolig ASA holders approved amendments to its NOK 500 million of senior bonds due 2018.

The meeting was held Friday in Oslo. The proposals were announced on Nov. 7.

The amendments relate to the company’s sales ratio covenant, and they improve the group’s operational flexibility and allow it to further boost the profitability of its projects, according to a company press release.

The company sought to lower the sales ratio covenant to 60% from 70% and redefine the definition of permitted financial debt to include guarantees issued in the ordinary course of business.

Other amendments included proposals to

• Remove the first call option at 103 from the June 2016 interest payment date to but excluding the June 2017 interest payment date; and

• Increase the equity ratio covenant to 25% from 22.5% to and including June 30, 2017 and to 27.5% after that.

Interest on the bonds is Nibor plus 475 basis points and the bonds issued in 2013.

Background

The company previously said that the current level of the sales ratio limits its operational flexibility and may prohibit the company from engaging in attractive projects or achieving optimal pricing for its projects.

The company normally provides the construction for a project equal to a sales ratio of 60%, at which time it is in a position to increase pricing for unsold units. But because it was not allowed to increase prices until the 70% threshold is reached, the issuer said it could not benefit from an optimal pricing structure.

Selvaag Bolig also said the current definition of permitted financial debt does not allow it to provide guarantees that are beneficial to its business. The company said that because of this, it has had to provide Norwegian tax authorities with cash collateral for the issuance of guarantees. But by pledging cash for these guarantees, the company’s free available cash position is severely impacted, preventing further growth. Thus the issuer would like to include guarantees issued in the ordinary course of business in the definition.

As a compensation for the suggested amendments of the sales ratio and permitted financial indebtedness definition, and in order for bondholders to maintain a good creditor position, Selvaag Bolig proposed increasing the equity ratio covenant. It will also remove the call option, further enhancing the bondholders’ creditor position.

According to the notice, the proposed amendments will increase the earnings potential of the group by giving it the ability to increase pricing for a larger portion of its unsold residential units and releasing trapped cash to enhance its operational flexibility.

To approve the resolutions, bondholders representing at least two-thirds of the bonds at the meeting needed to vote in favor of the resolution. In order to have a quorum, at least half of the voting bonds needed to be represented at the meeting.

Pareto Securities AS was the financial adviser.

The Oslo, Norway-based housing and residential developer is the surviving company under a merger with Hansa in August 2011.

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