Canada Life is providing up to £130m of fixed-rate senior debt to refinance Schroder’s listed Real Estate Investment Trust (SREIT).
Schroder’s investment manager Nick Montgomery said the aim of refinancing SREIT’s existing securitised loan, which matures in July 2014, was to “achieve a long-term debt maturity, reduction in debt cost and the operational flexibility to permit continued active management of the portfolio.”
The loan will be priced on 28 March against the 15-year gilt rate and drawn down on 15 April. SREIT expects the loan amount to be about £130m at an around 5% all-in cost, replacing £114.5m of finance at 5.72%.
The loan will be interest-only but 20% matures in 10 years, with the remaining 80% due in 15 years. It includes a 65% loan-to-value covenant ratio and an 185% interest cover ratio. The margin on the securitised loan was only 20bps, but SREIT was obliged to fully hedge it, at 5.5%.
A portion of the hedge runs until 2016; early repayment incurs an estimated £15.6m swap breakage cost, but this has no impact on net asset value, as the negative mark-to-market is included as a liability on the balance sheet.
SREIT’s shareholder base is mainly private clients and advisers who maybe didn’t like the swap’s complexity and volatility,” Montgomery said of the decision to go for fixed-rate financing.
It is Canada Life’s second recent large loan to a UK listed trust. Last July the insurer lent Picton Property Income £114m to refinance securitised debt and bank loans in a similar structure, with some debt repaying after 10 years and the rest after 15.
We felt they had experience of investing in a mixed portfolio of above-average yields,” said Montgomery. “A number of other insurance group lenders wanted more discretion over what we could put into the security pool.”