Intu refinances Metrocentre with £485m 10-year bond

New debt drops shopping centre group’s average borrowing cost to 4.9%

Intu has refinanced the Metrocentre in Gateshead, Europe’s largest shopping mall, with a £485m bond issue.

The single-tranche, fixed- rate, 10-year issue is priced at 4.125%, 137bps over the bench- mark gilt.

“We signed some new leases for 10 years and it made sense to match the length of the leases and the length of the bond,” said Intu finance director Matthew Roberts.

“The issue further extends our debt maturity profile and we now have no significant maturities until 2016.”

New borrowing cost saves 1.6% compared to previous debt
New borrowing cost saves 1.6% compared to previous debt

The cost of borrowing of the new bond is saving Intu about 160bps on the existing debt secured on the 2m sq ft centre.

It was originally financed in 2005 with a £600m CMBS, Opera Finance (Metrocentre). This was due to mature in February 2015.

The bond is Intu’s second since it set up a new funding platform, a special-purpose vehicle to issue investment-grade, secured debt in February this year. It was 2.5 times oversubscribed and taken up entirely by UK investors, with insurance companies and pension funds accounting for 54% and fund managers 46%.

The new bond represents a loan-to-value ratio of 55% on an October 2013 valuation of £881m. It has a five-year tail period between 2023 scheduled maturity and legal final maturity of the notes in 2028.

The proceeds will repay the existing debt on Metrocentre, plus provide Intu with a small net receipt. This cheaper debt reduces the group’s average cost of borrowing to 4.9%; it will also incur costs of around £20m in terminating the swaps on the existing debt.

The issue was rated A by Fitch and BBB+ by Standard & Poor’s. HSBC and Lloyds Bank were joint bookrunners, while Rothschild advised Intu on the debt.

Intu is one of string of public quoted property companies to use the bond markets to raise debt capital this year.

Grainger, Derwent London and Primary Healthcare Properties have all launched issues this month.

Last week, Grainger revealed its intention to issue £200m of seven-year secured notes with a charge over a substantial portion of its UK portfolio.

Derwent London, meanwhile, signed a £100m private placement with New York Life, and PHP raised £70m of 12-year money via a secured floating rate bond that was also placed with a single institutional investor.

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