London estates use unsecured notes as an alternative to bank finance
Landed estates Grosvenor and Cadogan have raised £275m in two private placements. Cadogan priced an issue of four maturities totalling £150m last month, while Grosvenor priced its issue this month, to raise £125m.
Cadogan’s issue consists of notes maturing in 10, 17, 21 and 30 years, with about half the £150m issued in dollars and half in sterling (see below). Cadogan swapped the dollar issue into sterling afterwards with three counterparty banks.
Richard Grant, Cadogan’s finance director, said that between 70% and 80% of the notes were bought by large US life company investors.
“We want long-term finance and in this particular financing, we were looking for between 10 and 30 years,” he said. “But we are not in the public bond markets – we are not rated and do not want to be.”
Both property groups stressed the importance of long-term relationships with the investors in their businesses. “Banks won’t lend for more than five years,” Grant said. “As long-term investors, we want to develop relationships with long- term funders who are content to lock up [this cashflow] to match their liabilities.
“There is no trading in these loan notes and for us it is very secure long-term funding.” Roger Blundell, finance director at Grosvenor Limited, Grosvenor Group’s UK and Ireland business, which issued the notes, said: “The bank market is open for Grosvenor, but some banks want to reduce their real estate liabilities and have a whole series of refinancings [to deal with].
“We felt investing with other lenders, coupled with the good pricing, was a good policy.” Grosvenor’s notes were issued entirely in sterling and bought by a handful of large UK and US investors. The US investors in the £95m of 20-year notes then swapped them into dollars.
Grant said that Cadogan will use £100m to pre-pay a loan with Royal Bank of Scotland and the additional £50m will be for “general acquisition purposes”.
Grosvenor has raised the money to invest in developing its Mayfair estate in and around Eaton Square, SW1. An RBS team led by Stuart Hitchcock was sole book runner on both deals and on two earlier private placements for Cadogan, in 2006 and 2008.
Grant said that after the latest placement, Cadogan no longer has any bank finance apart from a revolving credit facility for working capital, and an older debenture with the Prudential. Grosvenor has also accessed the private, unsecured market before and has about £100m of bonds outstanding, with another £200m, unrated, bond in the public market.