CMBS refinancing strengthens Hercules

A £350m, five-year loan facility from Lloyds, MetLife and RBS  has provided the final slug of refinancing for the loan backing retail warehouse fund Hercules Unit Trust’s CMBS.

“We were very pleased to work with three major lenders,” said Lucinda Bell, finance director of HUT’s adviser, British Land. “We have raised £850m over a relatively short period. Lenders are attracted to the prime nature of the assets.”

A £250m term loan, provided in equal shares by MetLife and RBS, will be used to fully repay the remaining balance of the CMBS loan before it expires in October 2012.

The other £100m from Lloyds is a revolving credit facility. Issued in 2005, the REC 4 Retail Parks CMBS originally securitised £1bn of debt. In 2009, bondholders agreed a restructuring that allowed it to be refinanced piecemeal.

“The CMBS matures in October 2012, so we split the refinancing and raised £350m last year and another £350m now,” said Bell.

“Each time there is a £100m revolving facility available to fund development, capital expenditure, and acquisitions. This doesn’t cost anything if it doesn’t need to be drawn.”

Aareal Bank provided the earlier, £350m facility last September, syndicating part of it to other banks. Swapped to a fixed rate, the all-in interest on that loan was 4%, including arrangement fees, compared to 5.25% payable under the existing facility. “As part of the refinancing we were able to retire expensive convertible notes,” said Bell.

The revolving facility associated with the Aareal loan helped HUT redeem £194m of 10% subordinated convertible notes, meeting their earliest redemption date in January 2012.

The third leg of HUT’s refinancing was a £150m, five- year loan for its joint venture The Gibraltar Partnership, agreed in March with Deutsche Pfandbriefbank and Helaba.

Overall, HUT is paying less for its new debt. “Margins have risen, but interest rates have gone down, so the all-in cost to HUT has fallen significantly, from 6% to 3.8%,” said Bell.