Hercules gains bondholder consent to £1 billion CMBS restructuring (UK)

Schroders and British Land announced that bondholders to REC 4 have today unanimously approved the proposals to restructure the terms of the £1 billion (approx. €1.09 bln.) Commercial Mortgage Backed Security loan facility made to the Hercules Unit Trust (the 'Trust'). The transaction is believed to be the first restructuring of its kind approved by bondholders.

The restructuring provides Hercules with the flexibility it requires to actively manage the refinancing of its debt before maturity in 2012. The original loan was set up in 2005 when single refinancings of £1bn were achievable. As a result the loan, like many others at that time, included a number of portfolio restrictions aimed at ensuring minimum levels of diversification within the asset pool. However, in today's market with significantly reduced liquidity, a £1bn refinancing is a very different proposition and the portfolio restrictions make it difficult, if not impossible, to refinance such a large portfolio on a piecemeal basis. The removal of these restrictions will allow the assets to be refinanced gradually over time thus reducing the refinancing risk and allowing the management team to focus its activities on maximising performance from the portfolio.

The restructuring has been possible due to the pro-active approach adopted by Schroders and British Land throughout 2009 to actively manage the balance sheet of the Trust. This comprised three key elements; the disposal of non-core assets; the issue of a convertible bond and recapitalization through new equity and finally negotiation of revised terms for REC 4. The success of the latter was largely due to a mutual desire to find a win/win solution for both the equity and bond holders.

Michael Clarke at Schroders said: "This is a real milestone for Hercules. While the last two years has created a number of challenges our success in finding a solution acceptable to all parties is testament to the team involved and the quality of the portfolio. The strong balance sheet and flexible financing structure now puts us on the front foot able to exploit these opportunities." The Trust was advised by Cairn Financial Products Ltd and Gibson Dunn & Crutcher.

Source: FD

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