9 November 2004 – LAWFUEL – Securities law, legal, law firm news – Al…

9 November 2004 – LAWFUEL – Securities law, legal, law firm news – Allen & Overy has advised Barclays Capital, Citigroup Global Markets Limited and Lloyds TSB Bank plc, the arrangers and underwriters of a new five-year £1.5 billion secured syndicated bank facility for Land Securities Group PLC. The new bank facility replaces the group’s existing unsecured bank facilities and has been provided to Land Securities as part of a complex refinancing package, which has also involved the exchange of existing mortgage debentures and unsecured bonds worth £1.8 billion for new secured bonds worth almost £2.4 billion.

The refinancing represents a change in strategy by Land Securities – moving from largely unsecured funding (with a single A credit rating) to secured financing, with the senior classes of bonds having a double A rating at closing.

As part of the bond/bank financing structure, Land Securities has moved £6.2 billion of investment properties into a secured sub-group of operating companies, which are subject to a tiered covenant regime. Different covenants operate at different ratio levels. If the sub-group stays within certain limits, it enjoys unsecured-style financing with fewer constraints on the business. If the limits are exceeded, tighter covenants, more typical in a secured financing, will apply.

The bank and bond debts have been issued alongside each other and all credit providers are subject to a common security and covenant package.

Banking partner Philip Bowden led the Allen & Overy team, assisted by senior associate Antonia Lester and associates Jill Hargreaves and Karim Wali.

Commenting Philip Bowden said: “This financing was a ground breaking deal for Land Securities, involving an innovative financing structure which gives the creditors the comfort of security , and the company access to a highly flexible financing structure. While the banks were obviously happy to move to a secured financing, they had to grapple with a number of complex intercreditor issues.

The challenge for the banks was to move away from a traditional senior unsecured financing structure, where the banks control the decision-making process without reference to other creditors. A complex intercreditor regime enables the banks to protect their interests by exercising control at certain key points, whilst accepting that at other times the most senior creditors would be in control. The common covenants package which applies to all creditors who sign up to the intercreditor deed is a hybrid package – the covenants sitting somewhere between those found in a typical securitisation bond financing and a syndicated bank deal – and the banks had to be comfortable with their position under that package.

We worked closely to resolve these intercreditor issues with all parties, including Slaughter and May, who advised Land Securities, and Clifford Chance, who advised Citigroup as arranger.”

For further information, please contact Jo Shepherd (jo.shepherd@allenovery.com) in London on +44 (0)20 7330 2195 or on +44 (0)7771 896 290.

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