Unite announces launch and pricing of £380 million USAF bond financing (UK)

 The UNITE Group today announces the launch and pricing of £380 million (approx. €447 million) of bonds issued under the new debt funding platform for the UNITE UK Student Accommodation Fund (‘USAF’) that was announced on June 1, 2013.

USAF is the largest specialist student accommodation fund in the UK, currently holding a portfolio of 63 properties valued at over £1.3 billion which are located in 20 markets across the UK providing over 21,000 bed spaces. UNITE is the largest investor in USAF with a holding of 16%.

The £380 million of bonds will have a 10-year maturity (due 2023) and a fixed coupon of 3.4%, representing a spread of 150 basis points over the reference gilt yield. The bonds comprise part of a larger £405 million refinancing, which incorporates a £25 million five year revolving credit facility, corresponding to an overall loan to value of around 50%. The existing USAF bonds being redeemed by this refinancing will be repaid on its next payment date on 28 June 2013. The new bonds are expected to be rated A (sf) by both Standard & Poor’s and Fitch.

The new debt funding platform extends the maturity on about two-thirds of USAF’s existing debt facilities, increasing USAF’s weighted average debt maturity from two years to seven years whilst also resulting in an overall reduction in its total cost of interest from 4.9% to 3.9%. As part of the transaction, USAF will incur costs associated with breaking interest rate swaps of approximately £11 million. UNITE’s share of these costs is £2 million and this will form part of the anticipated total cost of the Group’s break costs of £6-8 million for the whole of 2013.

UNITE’s share of the new debt represents approximately 10% of the Group’s total net debt as at 31 December 2012. The refinancing will have the following proforma impact on the Group’s debt statistics on a see-through basis:

- Average cost of debt reduced to 5.35% (5.5% at 31 December 2012)

- Weighted average loan maturity increase to six years (five years at 31 December 2012)

- Proportion of non-bank finance increase to 46% (43% at 31 December 2012)

Joe Lister, Chief Financial Officer of The UNITE Group plc, commented: "The launch and pricing of the new bond to support USAF’s refinancing will have a material impact on the Group’s total cost of financing, bringing significant savings and contributing towards our target of a 4.5% earnings yield by 2015. Achieving a strong investment grade rating provides key benefits in giving access to longer term finance, at competitive rates, and diversifying USAF’s sources of capital beyond the banking market.”

Source: Unite

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