UK Commercial Property life extension and discount control

UK Commercial Property has two debt facilities. One of £80m, provided by Lloyds Bank, expires in June 2015 and the other of £150m, Provided by Barclays Bank, expires in May 2018. the company wants to refinance the Lloyds loan and has found a new lender that is prepared to lend it money for 12 years.

Interest is expected to be payable on the New Facility at a rate in the range of 1.25% to 1.45% over the relevant 12 year UK Gilt. Based on UK Gilt rates as at 3 March 2015 it is estimated that the total interest rate payable under the new facility would be between approximately 3.31% and 3.51%.

However, UK Commercial Property has a continuation vote scheduled for its AGM in 2016 (and five-yearly thereafter). This causes a problem for the new lender and so the company is proposing to get shareholders to vote in 2020 instead and every seven years after that. If shareholders voted to wind up the company in 2020, UK Commercial Property would have to pay penalty interest on the early repayment of the new facility.

The EGM to approve the changes is scheduled for 31 March. Effectively this is shareholders’ first opportunity to vote on whether they want the company to continue as, if they reject this idea, UK Commercial Property might have to scramble to sell off property to repay the Lloyds loan.

At the same time the Board is proposing instituting a discount control mechanism whereby the company would buy in shares if the fund was trading wider than a 5% discount and, if the situation persisted, would hold a continuation vote – but as before this could trigger the early repayment penalty on the new loan.

UKCM : UK Commercial Property life extension and discount control