The issue, the first by a Spanish property company, was two times oversubscribed. The combination of a recovering property market, cheap debt and investors’ search for yield, makes it a propitious time for the sector to tap the bond markets for finance.
Colonial, which nearly went to the wall during Spain’s property crash, was recently given an investment grade rating of BBB- by Standard and Poor’s, another first for its sector in Spain. The company’s €5.5bn French and Spanish office portfolio is focused on the prime areas of Paris, Madrid and Barcelona markets.
The issue was split in two tranches: €750m of four-year notes with a coupon of 1.863% and €500m of eight-year notes, priced at 2.728%. The average coupon of 2.2% on the bonds is significantly lower than cost of the loan that is being replaced. Accounting for about 40% of the group’s debt, the loan was originated last year as part of the Colonial’s restructuring and carried a margin of 4oobps over Euribor.
According to Colonial, the maturity and other terms and conditions of the bond will improve its capital structure and save the approximately €20m annually, approximately 50% of its financing costs.
“The success of this issue, which is the first of its kind in terms of volume, terms and conditions, in the Spanish and European property market in recent years, along with the investment grade rating is a major milestone for Colonial, demonstrating how the markets are endorsing our successful strategy focused on a high quality prime office portfolio diversified in three markets,” commented Colonial’s chairman, Juan José Brugera.
“It is not just the value and nature of Colonial’s assets that make it a prime company but also the structure and terms of its debt.”