London & Quadrant (L&Q) took the Corporate Finance award for a £2.9bn refinancing prior to its 2016 acquisition of East Thames housing association – the largest-ever refinancing in the social housing sector.
Alongside the East Thames deal, L&Q completed the acquisition of Gallagher Estates, one of the largest land companies in the UK. Following the acquisition, L&Q, led by director of treasury Martin Watts AMCT, issued a dual-tranche £500m bond to pay down some of its bank facilities.
The £2.9bn refinancing successfully upgraded and aligned all L&Q’s documentation, providing great flexibility and capacity in the association’s capital structure. The refinancing comprised term loans, revolving credit facilities (RCFs) and bridging facilities with eight different lenders (six for the bridge).
The refinanced facilities enabled the new entity to fund out of the top group, align its covenant definitions and levels, and lend on to subsidiaries without restriction
With the exception of the bridge, all facilities were completed on a bilateral basis. Relatively unusually for the housing sector, L&Q issued its post-acquisition bonds at 12- and 40-year maturities.
With the housing association sector undergoing considerable consolidation, the merger of L&Q and East Thames has created an organisation with 90,000 homes worth an estimated £22bn in open-market terms. The scale of the refinancing and the fact that it had to be achieved ahead of the East Thames acquisition put considerable time pressure on L&Q.
However, the refinancing was achieved at borrower-friendly terms with a weighted average life of 10 years and an overall weighted margin of 60bps (excluding the bridge).
The refinanced facilities enabled the new entity to fund out of the top group, align its covenant definitions and levels, and lend on to subsidiaries without restriction.
As part of the refinancing, L&Q had to restructure and decided to end existing hedging arrangements, cancelling large amounts of interest rate swap and fixed-rate loan contracts in the process.
The overall transaction was executed within tight time frames, with the group delivering against funding objectives. It has also provided good liquidity going forward.
As well as benefiting L&Q, the transaction has paid dividends for the sector as a whole. Social housing has historically laboured under restrictive documentation. L&Q’s deal has prompted borrowers in this sector to revisit their funding structures in the interests of pursuing greater flexibility.
Issuer London & Quadrant
Amount £2.9bn refinancing; £500m dual-tranche bond
Structure Term loans, RCFs and bridging facilities for the refinancing
Rating (at time of deal) A1/A+
Currency and tenor £; av 10yr
Interest rate/coupon Weighted average margin of 60bps
“L&Q is a convincing winner in this category. The scale of the transaction, the ability of the organisation to execute it against a tight time frame and against an onerous regulatory backdrop is compelling.”
Tesco’s buyback of £800m of outstanding debt across its bonds drew the judges’ applause and won it a highly commended mention in this category. Group treasurer Lynda Heywood FCT oversaw the tender and repurchase of some of the supermarket giant’s longer-dated bonds, using surplus cash to cancel the debt.
The move strengthens Tesco’s balance sheet and prepares the ground for an improved rating in the future: Tesco’s rating has been sub-investment grade since 2015.
In addition, the buyback provided markets with a signal of confidence in Tesco’s future performance. Usually, when corporates tender for existing bonds, they buy back shorter-maturity, higher-coupon bonds and simultaneously sell longer-dated securities.
This transaction successfully decreased Tesco’s gearing, with net debt/EBITDA falling from £4.4bn in August 2016 to £3.3bn a year later.
An ACT CPD-accredited employer, Tesco targeted £2.65bn of bonds and tendered £1.145bn across seven sterling and euro bonds, reflecting a 43.1% aggregated hit rate. Tesco accepted £800m in the buyback, £100m more than the original target, which reflected the strong take-up.
The debt reduction will bring the company £31m in annual interest savings. Near-time financing risks were also reduced by the move.
The Treasurer's Deals of the Year Awards recognise the outstanding work of treasurers, both within the treasury community and the wider business world. Through them we champion the success and achievements of treasury teams that have stood out in the market over the prior 12 months. Winning an award is a great way to strengthen your organisation's and your treasury's profile, bringing peer and industry acknowledgement. Find out more here.