Shaftesbury aims to issue notes due 2028, 2031 in swap for 8.5% stock

By Susanna Moon

Chicago, Aug. 4 – Shaftesbury plc is looking to issue newly created longer-dated first mortgage bonds in exchange for its £61,048,148 of 8.5% first mortgage debenture stock due 2024.

In order to do so, the company needs to amend the terms of the debenture stock to allow redemption of the stock before maturity, according to a company announcement.

The new mortgage bonds would be issued by Shaftesbury Carnaby Ltd., a wholly owned subsidiary, and mature in 2028 or 2031.

The company will schedule a meeting for stockholders to approve a proposal to include a provision that allows the issuer to redeem the stock for cash or by exchanging the stock for first mortgage bonds.

The amendments require approval by holders of at least 75% of the stock by nominal value of those voting, the release noted.

Shaftesbury has held discussions with some holders of the 8.5% debenture stock about a proposal to amend the terms of the stock to allow the exchange.

The company would offer a cash alternative for stockholders who cannot or do not confirm their eligibility to receive the first mortgage bonds.

Holders of about 82.6% of the stock have said that they intend to vote for the proposal.

Proceeds of any additional bonds would be used for general corporate purposes or to pay cash to non-eligible stockholders.

Settlement is expected to take place before the end of 2016.

The stock was issued in 1994 “with a high coupon, which is now out of line with current market levels, and documentation which no longer reflects current market practice,” the company said.

The stock is trading at a “substantial premium to par,” the company noted.

Shaftesbury said that restructuring the stock would benefit stockholders by offering a market price for the bonds much closer to par.

Other benefits to holders include the following:

• Under an exchange, the market premium to par of the current stock would effectively become secured and be subject to covenants of 1.67x capital cover and 1.25x income cover based on the full nominal value of the bonds rather than the existing nominal value of the stock;

• A security package for the first mortgage bonds would include a larger and more diverse asset pool. Currently, the value of the assets charged under the stock is substantially in excess of the minimum required under the covenants of the stock and Shaftesbury has not yet exercised its rights to withdraw properties from the security pool;

• An updated trust deed, including enhanced information provisions for investors, improved frequency and testing of covenants, an improvement to some key terms and covenants and improved security top-up provisions relating to income cover;

• Exchange terms would result in stockholders receiving bonds at a premium to the current market value of the stock; and

• Subject to pricing and market conditions, the aggregate principal amount of first mortgage bonds is expected to be “significantly greater” than that of the stock.

“Long-term debt financing provides an efficient and effective method of funding for Shaftesbury, compatible with our long-established business model and portfolio of good quality assets, with strong income streams, in London's West End,” Chris Ward, finance director of Shaftesbury, said in the press release.

“The proposal, if implemented, would offer eligible stockholders the opportunity to benefit from an improved security and covenant package, modern contractual provisions and a current market coupon.”

Shaftesbury is a London-based real estate investment trust.

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