US insurers aid Workspace refinancing

Non-bank lenders play big role in £410m, unsecured refinancing for UK business space provider

Business space REIT Workspace has completed a £410m, unsecured refinancing of its debt with more than 60% of the funding coming from non-bank sources.

It is replacing two bank clubs with £158m from three US insurers and a UK fund, via a private placement, plus a £45m floating-rate loan from M&G’s UK Companies Financing Fund 2, and £150m of traditional five-year bank debt. The three facilities augment a £58m, 6%, seven-year retail bond Workspace issued last October.

Workspace’s choice of finance is part of a trend for property companies to embrace non-bank lenders, tapping into investors’ appetite for longer-term debt at relatively low loan-to-value ratios of around 50%.

Graham Clemett, the REIT’s chief financial officer, said that unsecured financing was useful for the company, which provides space to new and growing small and medium-sized firms, and intensively manages its assets.

“There are always things going on in our properties such as refurbishment and development, and unsecured finance gives us the freedom not to have to always be going back to banks to get assets released from secured pools,” he said. “It means we can capture value more quickly.

“If we had tried to do this five years ago, lenders might have turned up their noses. But the lending community has come a long way, we have built up a good track record and our corporate covenant is stronger for unsecured borrowing.”

Ernst & Young advised on the private placement. The three US insurers provided £148.5m with a 10-year maturity, while £9m of seven-year fixed-rate money came from M&G. Workspace has not released the pricing.

The group will hedge the floating-rate, nine-year, £45m loan from M&G UK Companies FF2, a fund that invests in growing small and medium-sized enterprises.

Workspace will also hedge a £50m term component of the £150m of new bank debt; the other £100m is a revolving facility, only 20% of it drawn.

The whole £410m package, which takes effect on 1 July, is expected to take Workspace’s average cost of drawn debt to 5.45%, from 5%, but it will increase average debt maturity to 7.5 years, from 2.9 years.

The new bank loan is from RBS and HSBC, which provided one of the two facilities being replaced, and Santander, which was a member of the bank club that provided the other facility being replaced. Together, those loans totalled £325m.

The Santander £200m facility was led by Bayerische Landes­bank and also included pbb Deutsche Pfandbriefbank and Nationwide. “German banks are not really placed to do unse­cured lending,” Clemett said.

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