UNITE restructures debt via £380m hybrid bond issue

Lister: “The feedback from the banks was that investors want simple, rated deals”

UNITE Group raised £380m this month from a hybrid bond issued under a new debt funding platform for the UNITE UK Student Accommodation Fund.

The single-tranche, 10-yearbonds are secured on 39 student housing buildings in 15 towns and priced at 150 basis points over the 10-year gilt, a fixed coupon of 3.4%.

They were rated A (sf) by Standard & Poor’s and Fitch Ratings and were issued by USAF Finance II.

UNITE Group’s chief financial officer Joe Lister said the bond was “more like an old-style debenture, but we brought in a couple of features from the CMBS model and the rating agencies look at it as a structured finance deal”.

Like a CMBS, the deal has a tail period to final legal maturity – of five years – substitution provisions and a liquidity facility covering six-months’ interest.

Lister added: “The investors on the whole were corporate bond investors. The issue was bought by about 25 UK investors, including the top 10 London and Scottish accounts.

“The feedback from the banks was that investors want simple, rated deals and we felt this was the greatest depth of demand. We were delighted with the pricing. Some investors wanted even longer than 10 years, but we are still a relatively new property asset class and we were keen to keep it to 10 years.”

Lloyds and HSBC were lead managers. Lloyds also provided a £25m, five-year revolving credit facility, taking the total raised to £405m, while the overall loan-to-value level is 50%.

The issue is a simpler version of last month’s Intu shopping centres deal, where the 10-year tranche of £450m of bonds was priced at 210bps over the gilt.

“That gave us confidence to follow a similar route,” Lister said. He added that the issuer structure provided the option to tap the bond market again.

The capital will repay the £280m UNITE (USAF) CMBS, due in March 2014; an HSH Nordbank/Santander loan, due to mature at the end of this year; and £11m swap breakage costs.

Also this month, UNITE expanded its capital base with a 9.9% share placing, raising £51.2m to part-fund regional developments with 2,500 beds.