Legal & General in £260m refinancing for F&C

Legal & General has agreed a £260m refinancing of the F&C Commercial Property Trust.

The 10-year fixed rate loan will see the listed trust repay £230m of secured bonds, which paid 5.23% per annum interest and which mature on 30 June 2015. A separate £30m bank loan which matures on the same day will also be repaid.

It is understood that the facility has a margin of less than 150 basis points over the 10-year gilt yield and the trust said that “the early refinancing of these loans will ensure certainty of funds and also allows the company to take advantage of the current availability of long term borrowings at attractive interest rates”.

Legal & General’s activity is a continued sign of the diversification of the UK and European lending market and increased activity of insurers and debt funds away from a market reliant on only bank finance.

Steve Boyle, real estate lending manager at Legal & General Investment Management said: “At the outset, we listened to the company’s requirements and put together a package which allows it significant flexibility. This, allied to a competitive rate, enabled us to win this large mandate, which will take our overall lending book to over £1bn in less than three years.”

The new arrangement means that the trust now has an LTV of around 25%. The L&G facility applies to the all of the properties owned by the trust other than its largest asset, the St Christopher’s Place Estate in London’s West End, which Barclays refinanced in 2010 with a £50m loan that is not repayable until 2017. The trust has an LTV cap of 50% but the trust’s board does not intend for borrowings to exceed 35%.

The agreement is due to be finalised subject to an extraordinary general meeting on 7 November to extend the duration of the trust to 2024.

Chris Russell, chairman of the F&C Commercial Property Trust, said: “The board is pleased to have entered into heads of terms with L&G on what it believes are attractive terms, and providing greater flexibility than the bonds. The new loan will allow the company to refinance the bonds ahead of their maturity, therefore removing any uncertainty as to the availability of funds. It is expected that the annual interest cost on the new loan will be significantly lower than the current interest rate on the bonds, thereby improving the company’s dividend cover.

The trust is managed by Richard Kirby and was launched in 2005. It owns a variety of London and prime UK regional assets. The two largest assets other than St Christopher’s Place are Newbury Retail Park and Cassini House, St James’s Street in the West End.

For Legal & General the deal comes on the back of a £75m loan it made to its own Industrial Property Investment Fund as part of a broader £350m refinance of the vehicle. It has also been prolific in lending to the social housing sector in the past year, providing long-term fixed-rate finance.