Workspace follows retail bond trend

Up to £75m sought with seven-year issue priced at 6%, above two recent property company offers

Workspace Group is the third property firm to launch a retail bond issue in as many months. The FTSE 250 company follows Primary Healthcare Properties, which raised £75m in July, and CLS, which raised £65m in August.

Workspace’s seven-year issue is priced at 6%, slightly higher than both PHP’s bond – which pays 5.375% – and CLS’s, at 5.5%. The offer period opened last week and was expected to close by 2 October, when the company hopes to raise between £50m and £75m.

Commenting on the pricing, Workspace’s chief financial officer, Graham Clemett, said: “We wanted to make sure it would appeal to investors and that it would trade well on the market, at or above par.

“We consulted with a range of brokers and the feedback was this was the right sort of level. We didn’t want to price it too keenly, partly because we see this as a long-term way to raise more money in future.” Investec Bank and Numis Securities are joint lead managers on the issue.

Although Workspace is not short of capital, with £80m of existing headroom, like other property companies it is keen to diversify away from an over-reli-ance on bank debt and to extend its loan maturity profile. “The good news now is that there are a lot more alternatives to clear-ing bank debt,” said Clemett.

The proceeds will be used to repay the company’s shortest maturity debt, its £68m, December 2014 facility with Lloyds. As with PHP and CLS’s issues, Workspace’s bond is unsecured, meaning the assets previously secured by the Lloyds loan can be released back to the company.

The retail bond market is relatively new and the earliest issues were from household names familiar to smaller investors looking for yield. Workspace’s strategy of leasing space to SMEs in London has already attracted a following from private investors, which helped with the bond marketing, Clemett said.

Investec said in a note last week that there has been debate about the covenants in the retail bond market and that Workspace offered protection to investors for the unsecured risk they were taking on, including minimum interest cover of 1.5 times, a 75% loan-to-value covenant and a call option priced at gilt yields plus 50 basis points. In the secondary market, PHP has been trading slightly above par, while CLS tracked down just below, to a price of 99.7p last week.

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