Big Yellow Group has refinanced its banking facilities with £215m in fresh senior debt in two tranches from Lloyds Bank, HSBC Bank and new lender to the UK self-storage REIT, M&G Investments.
The dual structured loan for Big Yellow replaces an existing £155m facility by Lloyds, HSBC and Santander, structured with a £120m term and a £35m revolving tranche. The blended margin on the legacy facility was 240bps.
Big Yellow’s fresh £145m attracts a margin of 175bps over three-month LIBOR on the £72.5m term tranche and a margin of 150bps for the revolving credit tranche, the latter pricing reflects a 75bps reduction on the margin of the existing RCF.
On completion the £145m five-year bank facility was £72m drawn. The principal Lloyds and HSBC bank facility requires Big Yellow to have 50% of all borrowings fixed.
Separately, M&G Investments has extended a dual fixed and variable £70m facility, with a seven-year term commencing from the drawdown date.
Big Yellow has agreed a £70m short-term bridging facility with Lloyds Bank, which is repayable immediately on the drawdown of the M&G Investments loan, which the self-storage REIT has until 29 June 2015 to drawdown on the agreed pricing terms.
The £70m M&G Investments loan will be secured over 15 freehold self-storage centres with its maturity dependent upon the drawdown date. The loan is structured 50% fixed, 50% variable based off three-month LIBOR plus a margin.
The average cost of the M&G loan at the current rate of LIBOR will be 3.75%.
Furthermore, Big Yellow has cancelled £40m of existing interest rate derivatives at a cash cost of £1.4m.
As a result of this refinancing, Big Yellow will benefit from both a lower average cost of debt and an increased average unexpired term of its debt facilities to 7.8 years
In April 2012, Big Yellow diversified its legacy bank lending – which previously also included HSH Nordbank – a £100m 15-year fixed rate senior loan with Aviva Commercial Finance, secured over a 15-strong portfolio of freehold self-storage centres, priced at 4.9% all-in.
At 31 March 2014, Big Yellow had drawn down £96.4m of the Aviva fixed rate loan.
Following today’s announced refinancing, Big Yellow has £238.4m of drawn credit across the Lloyds and HSBC bank, the separate Lloyds bridge loan and the Aviva loan, with undrawn debt headroom of £76.6m.
Big Yellow’s company level leverage, based on Cushman & Wakefield’s 31 March 2014 valuations, was 30.7% LTV against the £776.4m valuation of the self-storage REIT’s 54 wholly-owned stores.
This company level leverage reduces marginally to 29.8% LTV if Big Yellow’s four under construction stores are included and to 26.6% LTV if the value of held surplus land is additionally factored in.
John Trotman, chief financial officer of Big Yellow said in a statement this morning, said: “We are delighted to have refinanced our core bank facility and further diversified our lending pool through the new loan from M&G.
“These committed facilities, coupled with our existing £95.7m loan from Aviva (remaining term 13 years), have significantly increased the average unexpired term of our debt facilities to 7.8 years. In total we now have £238m drawn out of our total committed facilities.
“As a result of this refinancing, and prior to the drawing of the M&G facility, our average cost of debt decreases from 4.6% to 3.7%. Following the M&G facility being drawn and the Lloyds bridging loan being repaid we would expect the average cost to be approximately 4.2%, based on the current levels of LIBOR.”
In a research note this morning, Tim Leckie, property equity research analyst at JP Morgan Cazenove, estimated that the short-term lower cost of debt to 3.7% would deliver a full year saving of circa £2m of interest expense, or £1.3m for the remaining seven months of the full year to end of March 2015 .
Leckie wrote: “With the circa £2m saving to interest expense, representing 6.25% of our FY15e recurring income estimate, we see an ongoing positive impact to adjusted earnings per share of around 1.2p per share or 5.2%.”