Derwent London cuts debt costs with £75m Wells Fargo loan

Wells Fargo has provided an unsecured £75m revolving credit facility to Derwent London.

The five-year facility can be extended by up to two years and can be increased by £25m during its term.

The loan replaces a £90m facility, also provided by Wells Fargo, of which £70m was drawn. The refinancing will reduce the overall cost of Derwent’s debt by around 0.15-0.20%, depending on the amount drawn.

In its interim results for the first half of 2015, Derwent said: “The margin under the new facility is substantially lower than the previous one and, at a cost of £2m, we have reduced the amount hedged from £70m to £40m and extended the hedge period out to July 2022 at a rate of 2.446%.”

The new refinancing increased its flexibility as the facility has a £55m additional revolving element over the previous one, said Derwent.

“It also frees up £390m of assets taking our unencumbered property assets to £3.4bn. The financial covenants for the new facility are identical to those of our existing £550m unsecured revolving bank facility.”

As at 30 June 2015, Derwent’s weighted average interest rate was 4.20%, compared with 4.22% at 31 December 2014. The proportion of debt that was fixed or swapped into fixed rates was reduced to 91% compared to the end of 2014, and the level of cash and undrawn facilities was £319m.

Significant refinancing earlier this year saw Derwent gain a ratings boost from Standard & Poor’s. Standard & Poor’s raised Derwent’s long-term corporate credit rating in May to BBB+ from BBB “to reflect the company’s improved financial profile”.

Derwent converted £175m of convertible bonds with a coupon of 2.75%, issuing 7.88m new ordinary shares. Net debt at 30 June 2015 fell to £875.9m from £1,013.3m at 31 December 2014.

Derwent’s portfolio was valued at £4.58bn as at 30 June 2015, which produced a surplus of £362m. The company reported EPRA profit before tax of £39m for H1 2015, an increase of 22% from £32m on the same period last year.

Analyst Investec Securities noted that the London office specialists strongest value growth was from its ‘Tech Belt’ assets.