Proposed ZDP Share Issue

RNS Number : 6338L

Picton Property Income Limited

06 September 2012

 



NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN OR INTO AUSTRALIA, CANADA, JAPAN OR THE UNITED STATES OF AMERICA OR TO US PERSONS.

THIS DOCUMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE AN OFFER OR INVITATION TO PURCHASE OR ACQUIRE ANY TRANSFERABLE SECURITIES (AS DEFINED IN SCHEDULE 11A OF THE FINANCIAL SERVICES AND MARKETS ACT 2000), NOR SHALL IT FORM THE BASIS OF ANY CONTRACT FOR THE SALE OF ANY INTEREST IN A TRANSFERABLE SECURITY OR A SOLICITATION, INDUCEMENT, ADVICE OR RECOMMENDATION TO EFFECT ANY TRANSACTION OF ANY KIND WHATSOEVER. POTENTIAL INVESTORS SHOULD READ THE RELEVANT PROSPECTUS (WHICH WILL BE PUBLISHED IN DUE COURSE FOLLOWING APPROVAL BY THE UK LISTING AUTHORITY) CAREFULLY BEFORE ANY INVESTMENT DECISION IS MADE.

Picton Property Income Limited

("Picton", or together with its subsidiaries, the "Group")

6 September 2012                                 

PROPOSED ISSUE OF UP TO £22 MILLION ZERO DIVIDEND PREFERENCE SHARES AT A PRICE OF 100 PENCE PER SHARE

Picton, having recently completed a £209 million refinancing of its secured borrowings, announces that it proposes to issue up to 22 million new zero dividend preference shares ("2016 ZDP Shares") at 100 pence per share by way of a Rollover Offer and Placing (together the "Proposals"). The 2016 ZDP Shares are expected to have a term of four years with the final capital entitlement being paid in 2016.

The Rollover Offer is being made available to all eligible holders of the Group's existing zero dividend preference shares ("2012 ZDP Shares") (being the zero dividend preference shares issued by IRET Securities Limited, a wholly owned subsidiary of Picton) who will have the opportunity to exchange their 2012 ZDP Shares for 2016 ZDP Shares based on the accrued capital entitlement at the rollover date. The Placing will provide new investors with an opportunity to invest in the 2016 ZDP Shares.

The gross redemption yield of the 2016 ZDP Shares ("2016 ZDP GRY") will be determined by way of a book-build reflecting orders received pursuant to the Proposals. Potential investors will be asked to indicate the number of 2012 ZDP Shares they wish to roll forward via the Rollover Offer, or 2016 ZDP Shares they wish to acquire via the Placing, at different gross redemption yields ranging from 6.5% to 8.0%. The Rollover and Placing orders will then be aggregated and the gross redemption yield set at a point where demand exceeds the minimum issue size of £20 million.

The Rollover Offer and the Placing are being proposed to assist Picton in meeting its obligation to finance the final capital entitlement on maturity of the 2012 ZDP Shares on 31 October 2012.

The Board believes the Proposals will have the following advantages:

·      A number of holders of the existing 2012 ZDP Shares have indicated a desire to roll forward their existing holding and the Rollover Offer provides an opportunity for those holders to roll forward into the 2016 ZDP Shares;

·      The Placing provides the opportunity for new investors to participate in the issue of the 2016 ZDP Shares;

·      On completion of the Proposals, Picton will have completed its group refinancing exercise, with a balanced and staggered debt maturity profile of 4, 10, 15 and 20 years;

·      On completion of the Proposals, the Group will be able to manage its debt position effectively and, over time, reduce its gearing level by optimising the timing of asset disposals, and, if appropriate, using any excess income, to purchase 2016 ZDP Shares in the market;

·      The amortisation profile on the new senior debt facilities is expected to improve the cover of the 2016 ZDP Shares over time; and

·      A 2016 ZDP Share issue will allow the Group to have lower levels of debt against which its LTV covenants are measured providing greater operational flexibility.

The Group is currently preparing a prospectus in connection with these proposals which will be published in due course following approval by the UK Listing Authority ("UKLA"). 

Nick Thompson, Chairman of Picton, said: "Having diversified and secured favourable terms on our senior debt in July, the Board considered a number of proposals for financing the ZDPs. We decided that the Rollover Offer and Placing is in the best interests of shareholders as it provides the Group with flexibility in the short term, while providing the headroom to drive income through active management of the portfolio over the long term."

Michael Morris, Chief Executive of Picton Capital, said: "The proposals are aimed at concluding this significant refinancing exercise and are intended to provide the Group with the flexibility to manage down its debt position within a sensible timeframe."

For further information:

Picton Property Income Limited
Rachael Falla	Telephone: [phone]
Picton Capital Limited
Michael Morris	Telephone: [phone]
Oriel Securities Limited
Roger Clarke, Neil Langford, Tom Yeadon	Telephone: [phone]
Tavistock Communications
Jeremy Carey, James Verstringhe	Telephone: [phone]

Background to and benefits of the Proposals

During the course of 2012, the Group has undertaken a major refinancing, both significantly extending the maturity profile of its debt facilities and diversifying its sources of funding.

On 25 July 2012, Picton announced the completion of two new debt facilities, raising a total of £209 million at a blended fixed interest rate of 4.2 per cent, per annum, with a maturity profile of 10, 15 and 20 years. The new facilities were used to repay the Group's prior securitised loan facility and bank facility totalling £188.5 million. These new facilities have been secured at a lower overall interest rate and provide greater headroom against LTV covenants than the facilities which they replace.

The Group incurred arrangement fees and other costs as a result of entering these new facilities, reflecting the early termination of the prior facilities. These costs have been met through the new facilities with excess funds being put towards the repayment of the 2012 ZDP Shares.

The 2012 ZDP Shares are due to mature on 31 October 2012. The aggregate redemption sum payable to third parties on maturity is approximately £31.1 million. In order for the Group to refinance the 2012 ZDP Shares while continuing to invest in the portfolio with the objective of enhancing both income and capital value through improved occupancy, the Group has resolved to undertake an issue of the 2016 ZDP Shares by way of the Proposals. The Board believes this presents the optimal form of funding for the following reasons:

·      A number of holders of the existing 2012 ZDP Shares have indicated a desire to roll forward their existing holding and the Rollover Offer provides an opportunity for those holders to roll forward into the 2016 ZDP Shares;

·      The Placing provides the opportunity for new investors to participate in the issue of the 2016 ZDP Shares;

·      On completion of the Proposals, Picton will have completed its group refinancing exercise, with a balanced and staggered debt maturity profile of 4, 10, 15 and 20 years;

·      On completion of the Proposals, the Group will be able to manage its debt position effectively and, over time, reduce its gearing level by optimising the timing of asset disposals, and, if appropriate, using any excess income, to purchase 2016 ZDP Shares in the market;

·      The amortisation profile on the new senior debt facilities is expected to improve the cover of the 2016 ZDP Shares over time; and

·      A 2016 ZDP Share issue will allow the Group to have lower levels of debt against which its LTV covenants are measured providing greater operational flexibility.

The Proposals

Picton ZDP Limited, a newly incorporated wholly owned subsidiary of Picton, is seeking to issue up to 22 million 2016 ZDP Shares by way of the Rollover Offer and the Placing. The issue price of the 2016 ZDP Shares will be 100 pence per share. Application will be made to the UKLA and the London Stock Exchange for the 2016 ZDP Shares to be admitted to a standard listing on the Official List and to trade on the London Stock Exchange's main market for listed securities.

The holders of the 2016 ZDP Shares will be entitled to receive a capital sum at the end of the four year term (the "2016 ZDP Share Repayment Date"). The capital sum per 2016 ZDP Share will be 100 pence increased at an equivalent annual rate equal to the 2016 ZDP Share gross redemption yield from the date of issue, compounding daily. The 2016 ZDP Shares will have no entitlement to any dividends or to participate in the revenue profits of the Group.

The gross redemption yield of the 2016 ZDP Shares will be determined by way of a book-build reflecting orders received pursuant to the Rollover Offer and Placing. Potential investors will be asked to indicate the number of 2012 ZDP Shares they wish to roll forward via the Rollover Offer, or 2016 ZDP shares they wish to acquire via the Placing, at different gross redemption yields ranging from 6.5% to 8.0%. The Rollover Offer and Placing orders will then be aggregated and the gross redemption yield set at a point where demand exceeds the minimum issue size of £20 million.

The 2016 ZDP Share gross redemption yield will impact the final capital entitlement, final net asset cover, final debt cover and hurdle rate of the 2016 ZDP Shares and therefore the table below outlines this information at gross redemption yields between 6.5 per cent, and 8.0 per cent.

Gross Redemption Yield	6.50%	6.75%	7.00%	7.25%	7.50%	7.75%	8.00%
Final Capital Entitlement	128.65p	129.86p	131.08p	132.31p	133.55p	134.79p	136.05p
Hurdle Rate	(12.1%)	(12.1%)	(12.1%)	(12.1%)	(12.0%)	(12.0%)	(12.0%)
Estimated Final Net Asset Cover	7.17x	7.10x	7.03x	6.97x	6.90x	6.84x	6.77x
Estimated Final Debt Cover	1.73x	1.73x	1.73x	1.73x	1.73x	1.72x	1.72x

The illustrative statistics are calculated on the basis of the principal bases and assumptions set out in the appendix of this announcement.

Picton will undertake, in a contribution agreement, to contribute such funds to ensure that Picton ZDP Limited has sufficient assets on the 2016 ZDP Share Repayment Date to satisfy the requirement to make the full capital payment to the holders of the 2016 ZDP Shares as well as paying all operational costs and expenses incurred by Picton ZDP Limited.

The rights attaching to the 2016 Picton ZDP Shares will be substantially similar to those attaching to the 2012 ZDP Shares, save for the gross redemption yield and the repayment date.

Use of Proceeds

The net proceeds of the Placing will be used by the Group, along with existing cash resources, to finance the final capital entitlement of the 2012 ZDP Shares not participating in the Rollover Offer.

The Directors believe that if valid elections under the Rollover Offer and / or applications under the Placing are received in respect of 2016 ZDP Shares with an aggregate issue value of at least £20 million the Group will have sufficient funds in order to meet the final capital entitlement of the 2012 ZDP Shares which is due on 31 October 2012.

In the event that the Proposals do not succeed, the Group will have a funding shortfall in respect of the 2012 ZDP Shares of approximately £20 million. If this were to occur, the Group would seek to address its funding shortfall in respect of the 2012 ZDP Shares due on 31 October 2012 through measures which may include any of, or a combination of: negotiating a subordinated debt facility, raising additional equity capital, disposing of properties in the Group's portfolio and suspending the dividends payable on the ordinary shares. There can be no guarantee that any of these alternatives would be agreed prior to, or post, the 31 October 2012 repayment date. If the Group fails to pay the final capital entitlement due on the 2012 ZDP Shares on 31 October 2012, and fails to reach an agreement with the holders of the 2012 ZDP Shares and/or the Group's senior lenders, this will result in a default for Picton under the Group's senior debt agreements.

Appendix

The statistics contained in this announcement relating to the 2012 ZDP Shares have been calculated on the following principal bases and assumptions:

·    The unaudited gross assets and net asset value of Picton as at 30 June 2012 were £438.0 million and £185.0 million respectively

·    The balance sheet for the purpose of calculating the Final Net Asset Cover, Final Debt Cover and Hurdle Rate of the 2016 ZDP Shares reflects the balance sheet as at 30 June 2012, adjusted for:

o the drawdown of the Aviva Facility and the Canada Life Facility

o the repayment of the securitised loan facility, bank facilities and liquidity facility

o the payment of the associated fees, including a £3.4m swap break cost

o the payment of interim dividend of 1 pence per share announced on 31 July 2012

o the expected costs of the Issue which are approximately £0.7  million

o the maximum number of 22,000,000 2016 ZDP Shares are issued pursuant to the Placing and Rollover Offer

o the repayment and/or rollover of the 2012 ZDP Shares

·    The net proceeds of the Placing and Picton existing cash facilities are used to finance the final capital entitlement of the 2012 ZDP Shares not participating in the Rollover Offer

·    The capital accrual of a 2012 ZDP Share is 6.875 per cent., compounded from an issue date of 14 May 2010 up to (but not including) its repayment date. The final capital entitlement of 76.6 pence per 2012 ZDP Share is payable on 31 October 2012

·    The capital accrual of a 2016 ZDP Share is the relevant gross redemption yield, compounded from its issue date up to (but not including) its repayment date over a term of 4 years

·    Management costs, interest on borrowings and running expenses are charged 100 per cent, to revenue and the gross revenue is at least equal to these costs

·    No redemption, conversions or repurchases of any ordinary shares are made prior to the redemption of the 2016 ZDP Shares

·    Final Net Asset Cover is calculated as the ratio of: (a) total assets less prior charges, 2016 ZDP Share wind up costs, management costs and interest costs charged to capital; to (b) the 2016 ZDP Share final capital entitlement

·    Final Debt Cover is calculated as the ratio of: (a) total assets less prior charges due before the expiry of the term of the 2016 ZDP Shares; to (b) the sum of the 2016 ZDP Share final capital entitlement, 2016 ZDP Share wind up costs, management costs and interest costs charged to capital and prior charges due after the 2016 ZDP Share Repayment Date

·    The Hurdle Rate is calculated as the annualised rate of growth of the gross assets required to fully cover the 2016 ZDP Share final capital entitlement, assuming zero growth, and after accounting for wind up cost, and interest and management charges accrued to capital over the remaining life and the prior charges

·    Wind-up costs equal to one per cent. of the issue size

This press release appears as a matter of record only and does not constitute an offer to sell or a solicitation of an offer to purchase any security.

The distribution of this Announcement in certain jurisdictions may be restricted by law. No action has been taken by Picton, Picton ZDP Limited (the "Issuer") or Oriel Securities Limited ("Oriel") that would permit an offering of the 2016 ZDP Shares or possession or distribution of this Announcement or any other offering or publicity material relating to such shares in any jurisdiction where action for that purpose is required. Persons into whose possession this Announcement comes are required by Picton, the Issuer and Oriel to inform themselves about, and to observe, such restrictions.

The information presented herein is not an offer for sale within the United States of any equity shares or other securities of Picton or the Issuer. Neither Picton nor the Issuer has been nor will it be registered under the US Investment Company Act of 1940, as amended (the "Investment Company Act"). In addition, the 2016 ZDP Shares have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act") or any other applicable law of the United States. Consequently, the 2016 ZDP Shares may not be offered or sold or otherwise transferred within the United States, or to, or for the account or benefit of, US Persons (as defined in Regulation S under the Securities Act), except pursuant to an exemption from the registration requirements of the Securities Act and under circumstances which will not require Picton or the Issuer to register under the Investment Company Act. No public offering of the 2016 ZDP Shares is being made in the United States. The 2016 ZDP Shares may only be resold or transferred in accordance with the restrictions set forth in the Prospectus and related subscription documents. This communication should not be distributed, forwarded, transferred, reproduced, or otherwise transmitted, directly or indirectly, to any persons within the United States or to any US Persons unless it is lawful to do so.

This Announcement has been approved for the purposes of section 21 of the Financial Services and Markets Act 2000 (as amended) by Picton Capital Limited which is authorised and regulated by the Financial Services Authority (FSA no. 551027). 

This Announcement is for information purposes only and does not constitute an invitation to subscribe for or otherwise acquire or dispose of securities in Picton or the Issuer in any jurisdiction. The information contained in this Announcement is for background purposes only and does not purport to be full or complete. No reliance may be placed for any purpose on the information contained in this Announcement or its accuracy or completeness, This announcement does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe or purchase, any investments nor shall it (or the fact of its distribution) form the basis of, or be relied on in connection with, any contract therefor.

This announcement may include certain "forward-looking statements". These statements are based on the current expectations of Picton and the Issuer and are naturally subject to uncertainty and changes in certain circumstances. Forward-looking statements typically include statements containing words such as "intends", "expects", "anticipates", "targets", "plans", "estimates" and words of similar import. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are various factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include, but are not limited to, changes in economic conditions, changes in the regulatory environment, fluctuations in value of real estate, interest and exchange rates, the outcome of litigation and government actions. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements. Neither Picton nor the Issuer undertakes any obligation to update publicly or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.

All investments are subject to risk. Past performance is no guarantee of future returns. The value of investments may fluctuate. Results achieved in the past are no guarantee of future results. This document is not intended to constitute legal, tax or accounting advice or investment recommendations. Prospective investors are advised to seek expert legal, financial, tax and other professional advice before making any investment decision. Statements contained in this document that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Picton and the Issuer. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Additionally, this document contains "forward-looking statements". Actual events or results or the actual performance of Picton may differ materially from those reflected or contemplated in such targets or forward-looking statements.

Oriel Securities Limited is acting for Picton and the Issuer and no-one else in connection with the Proposals and will not be responsible to anyone other than Picton and the Issuer for providing the protections afforded to customers of Oriel or for providing advice in relation to the Proposals.

 

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