Shaftesbury calls £61.05 million 8.5% first mortgage debenture stock

By Tali Rackner

Norfolk, Va., Sept. 14 – Shaftesbury plc plans to redeem all £61,048,148 of its 8.5% first mortgage debenture stock due 2024, according to a filing with the London Stock Exchange.

The debentures are expected to be redeemed on Oct. 7. The transaction will not occur later than Dec. 31.

Holders have the option to exchange their notes or have them redeemed.

As previously reported, Shaftesbury announced plans in August to issue newly created longer-dated first mortgage bonds in exchange for the 8.5% first mortgage debenture.

In order to do so, the company needed to amend the terms of the debenture stock to allow redemption of the stock before maturity.

The amendments required approval by holders of at least 75% of the stock by nominal value of those voting.

At a meeting on Sept. 7, holders of £56,474,349 of the stock were represented, with 100% of votes cast in favor of the proposal, which included a provision that allows the issuer to redeem the stock for cash or by exchanging the stock for first mortgage bonds.

A supplemental indenture implementing the proposal was executed following the vote.

Exchange plan

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

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

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

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 in August.

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

Shaftesbury said that restructuring the stock will 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 will effectively become secured and be subject to covenants of 1.67 times capital cover and 1.25 times 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 will 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 will 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 a 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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