CLS tailors hedging on new £78.5m loan

CLS Holdings has agreed an innovative ‘conditional’ arrangement for hedging its latest loan facility.

The quoted property firm replaced an expiring Eurohypo loan secured on Spring Gardens in Vauxhall, London, with a £78.5m, four-year RBS and Deutsche Postbank club facility. The offices are let on RPI leases to the Home Office for another 14 years.

CLS chief executive Richard Tice said: “We designed a conditional hedging arrangement ourselves. The loan can float, unless the benchmark rate, three-month Libor, hits a pre-agreed trigger, when we have to hedge.”

The rate for the trigger is believed to be above 3%. “We take the view that three – month Libor will remain at its very low level for several years and this avoids the cost of hedging if we don’t need to.

“In this sort of interest rate environment it is an interesting option that throws off more cashflow, and lenders can take more amortisation or share the benefit with the borrower.” The margin on the 65% loan-to-value facility is between 250 and 300 basis points.

Tice said this refinancing, and the replacement of a smaller, former KBC loan on CI Tower in New Malden with a new £9.1m facility, cuts CLS’s overall cost of borrowing on around £600m of gross debt from 4.1% to 3.8%.

“We think it’s one of the two or three lowest in the UK commercial sector,” he added. “The advantages of being listed have never been greater in terms of fundraising. It gives us options that would be impossible if we were not – some banks have said they wouldn’t have lent otherwise.”