Rights Issue, refinancing & trading update

RNS Number : 3656K

Pendragon PLC

14 July 2011

 



NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION (DIRECTLY OR INDIRECTLY) IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES, CANADA, JAPAN, AUSTRALIA OR THE REPUBLIC OF SOUTH AFRICA, OR ANY OTHER JURISDICTION WHERE TO DO THE SAME WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION.

14 July 2011

Pendragon PLC

Proposed Rights Issue and refinancing of  banking facilities, pension transaction and trading update

The Board of Pendragon PLC ("Pendragon", the "Company" or the "Group") today announces a proposed fully underwritten Rights Issue (the "Rights Issue") to raise gross proceeds of approximately £75.2 million (approximately £70.8 million net of expenses).

In addition, the Board today announces that it has agreed to extend the maturity profile of its borrowing facilities to June 2014, on improved terms, conditional on the receipt by the Lending Group of the proceeds of the Rights Issue (the "Revised Facilities"). Further, the Group is giving a market update which includes a pension transaction which will eliminate the current pension deficit and significantly reduce cash outflow during the next three years (the "Pension Deficit Reduction Plan").

Highlights

·      Recapitalisation of the Group through a fully underwritten Rights Issue to raise gross proceeds of approximately £75.2 million (approximately £70.8 million net of expenses).

·      Trading and outlook for the year is in line with the Board's expectations.

·      The Revised Facilities extend the maturity profile of the Group's borrowing facilities to June 2014, on improved terms, conditional on the receipt by the Lending Group of the proceeds of the Rights Issue.

·      The current pension deficit will be eliminated through the Pension Deficit Reduction Plan which is a property-backed transaction that reduces cash outflow by £46 million up to December 2014.

Rights Issue

·      9 for 8 Rights Issue of 751,577,623 New Ordinary Shares at an issue price of 10 pence per share:

·     Represents a 35.6 per cent  discount to the theoretical ex-rights price and a discount of 54.0 per cent. to the Closing Price of an Existing Ordinary Share of 21.75 pence on 13 July 2011 (being the latest practicable date prior to the date of this announcement).

·     The New Ordinary Shares to be issued will represent approximately 52.9 per cent. of the Enlarged Share Capital following the Rights Issue.

·      The proceeds of the Rights Issue will allow the Group to improve its level of financial indebtedness towards the previously stated long-term Debt: Underlying EBITDA ratio target of 2:1, which the Directors believe will constitute an immediate and long-term benefit to Pendragon.  As a result of the transactions announced today, the Company has set a new Debt: Underlying EBITDA target of below 1.5:1.

·      It should be possible for the Company to resume paying dividends in relation to its 2012 financial year onwards, which is earlier than would otherwise have been the case.

·      The Rights Issue is unanimously supported by the Directors.

·      The Rights Issue is subject to approval by the Company's Shareholders at the General Meeting.

Revised Facilities

·      The reduction in debt and improved terms under the Revised Facilities significantly reduce the overall cost of debt finance.

·      The extended maturity profile of the Group's borrowing facilities together with the improving credit metrics of the Group should facilitate refinancing of the Revised Facilities ahead of the revised maturity date of 30 June 2014.

·      A more robust capital structure will enable the Group to continue to maintain investment in the profitable growth of the business.

·      The Revised Facilities are conditional upon receipt by the Lending Group of the proceeds of the Rights Issue.

Pension Deficit Reduction Plan

·      A new Pension Deficit Reduction Plan has been agreed with the pension trustees, which will unlock aggregate cash flow savings of £46 million in the period to December 2014.

·      Annual updates have been produced by the Scheme Actuary for the six defined benefit schemes (the "Pension Schemes") operated by Pendragon as at April 2011. These show a significant reduction in the combined deficit since April 2010 (from £97 million to £40 million as at April 2011).

·      Under the Pension Deficit Reduction Plan, the Group will provide the Pension Schemes with an investment which generates a predictable property asset-backed income for the Pension Schemes.

·      It is estimated that the current pensions deficit of £40 million will be eliminated by cash contributions made from April 2011 to July 2011 and by the Pension Deficit Reduction Plan.

·      The new arrangements will therefore enable the Group to benefit from lower annual cash contributions than the present arrangements (for example, a reduction in the scheduled payment in 2012 from £18.5 million to £2.5 million).

Commenting on the proposals, Mike Davies, the Chairman of Pendragon, said:

"Today's announcement marks an important step in the evolution of Pendragon. These proposals recapitalise the Group, providing it with greater strength and flexibility. We are now better placed to pursue our clear strategy and implement our operational initiatives, which we believe will create further value for shareholders.  We are pleased to see the encouraging performance of the Company in 2010 has continued into the first five months of 2011, despite a challenging economic environment. Overall, Pendragon is performing in line with the Board's expectations for the full year."

Rothschild is acting as joint financial adviser and joint sponsor to Pendragon with respect to the Rights Issue. RBS Hoare Govett is acting as joint financial adviser, joint sponsor, joint bookrunner, joint underwriter and joint corporate broker with respect to the Rights Issue.  Barclays Capital is acting as joint underwriter and joint bookrunner with respect to the Rights Issue.  Arden Partners is acting as co-bookrunner, joint underwriter and joint corporate broker with respect to the Rights Issue.

A combined prospectus and circular to Shareholders relating to the Rights Issue will be available on Pendragon's website, www.pendragonplc.com, in due course following approval by the UK Listing Authority and will contain further details and the full terms and conditions of the Rights Issue.

Indicative timetable and key dates

Each of the times and dates in the table below are indicative only and may be subject to change:

Announcement of the Rights Issue	14 July 2011
Anticipated date of General Meeting	1 August 2011
Dealings in Nil Paid Rights commence on the London Stock Exchange	2 August 2011
Anticipated admission and commencement of dealings in the New Ordinary Shares	17 August 2011

The interim results for the 6 months ended 30 June 2011 are expected to be published during the week commencing 22 August 2011.

This summary should be read in conjunction with the full text of this Announcement.

There will be a presentation for analysts today at 09.00 at RBS Hoare Govett's offices, 250 Bishopsgate, London, EC2M 4AA.  It will also be possible to dial in to the presentation using the details below:

Telephone number: [phone]

Title of the call: Pendragon

For further information, please contact:

Pendragon PLC                                                                                                                    Tel: [phone]

Trevor Finn, Chief Executive

Tim Holden, Finance Director

Rothschild                                                                                                                             Tel: [phone]

John Deans

Francis Burkitt

RBS Hoare Govett                                                                                                                Tel: [phone]

Simon Hardy

Lee Morton

Barclays Capital                                                                                                                   Tel: [phone]

Adam Welham

David Seal

Arden Partners                                                                                                                     Tel: [phone]

Steve Douglas

Finsbury                                                                                                                                Tel: [phone]

Philip Walters

Gordon Simpson

Shareholder enquiries

If you have questions, please telephone the shareholder helpline operated by Capita on the numbers set out below. This shareholder helpline is available from 8:30 a.m. to 5.00 p.m. London time, Monday to Friday (except bank holidays). Calls to this number are charged at ten pence per minute if calling from a BT landline; other telephone providers' charges may vary. Please note that the shareholder helpline cannot give investment advice.

Shareholder helpline telephone numbers:

0871 664 0321 (inside the United Kingdom) or [phone] (outside the United Kingdom)

Cautionary note regarding forward-looking statements

Some of the information in this announcement may contain forward-looking statements which reflect the Group's or, as appropriate, the Directors' current views with respect to financial performance, business strategy, plans and objectives of management for future operations (including development plans relating to the Group's products and services). These statements include forward-looking statements both with respect to the Group and the sectors and industries in which the Group operates. Statements which include the words "expects",  "intends",  "plans",  "believes",  "projects",  "anticipates", "will", "targets", "aims", "may", "would", "could", "continue" and similar statements of a future or forward-looking nature identify forward-looking statements. All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause the Group's actual results to differ materially from those indicated in these statements. Any forward-looking statements in this announcement reflect the Group's current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the Group's business, results of operations, financial conditions and growth strategy.  No representation or warranty, express or implied, is given by or on behalf of the Group, the Banks or any of their respective directors, officers, employees, advisers or any of their respective affiliates, or any other person, as to the accuracy, fairness or sufficiency or completeness of the information or opinions or beliefs contained in this announcement (or any part hereof). None of the information contained in this announcement has been independently verified or approved by the Banks or any other person. Save in the case of fraud, no liability is accepted for any errors, omissions or inaccuracies in such information or opinions or for any loss, cost or damage suffered or incurred howsoever arising, directly or indirectly, from any use of this announcement or its contents or otherwise in connection with this announcement.

Forward-looking statements contained in this announcement regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Except as required by the Listing Rules, the Disclosure and Transparency Rules, the Prospectus Rules, the London Stock Exchange or otherwise by law, the Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 

Important notice:

THE NIL PAID RIGHTS, THE FULLY PAID RIGHTS, THE PROVISIONAL ALLOTMENT LETTERS AND THE NEW ORDINARY SHARES (COLLECTIVELY, THE "SECURITIES") REFERRED TO HEREIN HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD, TAKEN UP, EXERCISED, RESOLD, RENOUNCED TRANSFERRED OR DELIVERED IN THE UNITED STATES UNLESS THEY ARE REGISTERED UNDER APPLICABLE LAW OR EXEMPT FROM REGISTRATION. THE COMPANY DOES NOT INTEND TO REGISTER ANY PORTION OF THE RIGHTS OFFER IN THE UNITED STATES OR TO CONDUCT A PUBLIC OFFERING OF THE SECURITIES IN THE UNITED STATES. ANY OFFERING OF SECURITIES WILL BE MADE BY MEANS OF A PROSPECTUS THAT MAY BE OBTAINED FROM THE COMPANY SUBJECT TO CERTAIN RESTRICTIONS AND WILL CONTAIN DETAILED INFORMATION ABOUT THE COMPANY AND MANAGEMENT AS WELL AS FINANCIAL STATEMENTS. NO MONEY, SECURITIES OR OTHER CONSIDERATION IS BEING SOLICITED AND, IF SENT IN RESPONSE TO THE INFORMATION CONTAINED HEREIN, WILL NOT BE ACCEPTED. THE COMPANY WILL NOT BE REGISTERED UNDER THE US INVESTMENT COMPANY ACT OF 1940, AS AMENDED, AND INVESTORS WILL NOT BE ENTITLED TO THE BENEFITS OF THE ACT.

This announcement has been issued by and is the sole responsibility of Pendragon.

N M Rothschild & Sons Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as joint financial adviser and joint sponsor to the Company in connection with the Rights Issue and will not be responsible to any person other than the Company for providing the protections afforded to its customers, or for advising any such person on the contents of this announcement or any other transaction, arrangement or matter referred to herein.

RBS Hoare Govett Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as joint financial adviser, joint sponsor, joint broker, joint bookrunner and joint underwriter in connection with the Rights Issue and will not be responsible to any person other than the Company for providing the protections afforded to its customers, or for advising any such person on the contents of this announcement or any other transaction, arrangement or matter referred to herein.

Barclays Capital, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as joint bookrunner and joint underwriter in connection with the Rights Issue and will not be responsible to any person other than the Company for providing the protection afforded to its customers, or for advising any such person or the contents of this announcement or any other transaction, arrangement or matter referred to herein.

Arden Partners, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as joint underwriter, joint broker and co-bookrunner in connection with the Rights Issue and will not be responsible to any person other than the Company for providing the protection afforded to its customers, or for advising any such person or the contents of this announcement or any other transaction, arrangement or matter referred to herein.

This announcement is an advertisement. It is not a prospectus and investors should not subscribe for or purchase any shares referred to in this announcement except on the basis of information contained in the Prospectus which is to be published in due course. The information contained in this announcement is for background purposes only and does not purport to be full or complete. No relevance may or should be placed by any person whatsoever on the information contained in this announcement or its accuracy or completeness. The information in this announcement is subject to change. Nothing in this announcement should be interpreted as a term or condition of the Rights Issue. Any decision to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any Nil Paid Rights, Fully Paid Rights and/or New Ordinary Shares must be made only on the basis of the information contained in and incorporated by reference into the Prospectus. The Prospectus, when published, will be made available on Pendragon's website and will be available for inspection at the offices of CMS Cameron McKenna LLP, Mitre House, 160 Aldersgate Street, London EC1A 4DD.

This announcement does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to acquire any Nil Paid Rights, Fully Paid Rights or New Ordinary Shares, nor shall it (or any part of it), or the fact of its distribution, form the basis of, or be relied on in connection with or act as any inducement to enter into, any contract or commitment whatsoever with respect to the proposed Rights Issue or otherwise.

The distribution of this announcement in certain jurisdictions may be restricted by law and such distribution could result in violation of the laws of such jurisdictions. In particular, this announcement is not for distribution in the Excluded Territories.

The information in this announcement may not be forwarded or distributed to any other person and may not be reproduced in any manner whatsoever. Any forwarding, distribution, reproduction or disclosure of this information in whole or in part is unauthorised. Failure to comply with this restriction may result in a violation of the US Securities Act or the applicable laws of other jurisdictions.

Any person receiving this announcement is advised to exercise caution in relation to the Rights Issue. If in any doubt about any of the contents of this announcement, independent professional advice should be obtained.

Neither the content of the Company's website nor any website accessible by hyperlink on the Company's website is incorporated in, or forms part of, this announcement.

PROPOSED RIGHTS ISSUE

1.  Introduction

On 14 July 2011, the Company announced a proposed, fully underwritten 9 for 8 share issue to raise gross proceeds of approximately £75.2 million (approximately £70.8 million net of expenses) by way of the Rights Issue, underwritten fully by the Joint Underwriters. Pendragon has also agreed to extend the maturity profile of its borrowing facilities to June 2014, on improved terms, conditional on the successful completion of the Rights Issue.

2.  Information on Pendragon

Pendragon is the largest independent operator of franchised motor vehicle dealerships in the UK, with 237 franchise points, nine of which are in California. Pendragon sells and services a broad range of new and used motor cars and commercial vehicles and has a substantial presence in the UK vehicle leasing, wholesale parts and dealership management system markets.

3.  Background to and reasons for the Rights Issue

In the face of extremely challenging markets in 2008 and 2009 the Group undertook a number of actions to lower costs, increase return on capital employed and sustain cash flow generation. The quick and decisive actions taken by management to improve business performance, close poorly performing sites and rationalise the cost base, yielding savings of £64 million in 2009, have ensured that Pendragon has emerged from that very difficult period a stronger business. Pendragon is now better placed to take advantage of recovering market conditions as demonstrated by the improved performance of the Group in 2010, and the encouraging start to 2011.

Despite these difficult market conditions, and the one-off costs associated with addressing the challenges faced by the business as a result, Pendragon has remained cash generative. Since the agreement of the Group's existing debt facilities in April 2009, the Group has at all times operated within its banking covenants, and continues to do so today.

Given the prevailing restricted environment in the UK lending market, and in particular as certain institutions seek to reduce their exposure to the UK market, the Directors anticipated challenges in renewing the Existing Facilities on acceptable terms and consequently began early discussions on the renewal of these facilities.

Despite the Group's encouraging operating and financial performance, it became clear from these discussions that, without a material reduction in the size of the Existing Facilities, it was unlikely that they could be revised on acceptable terms. The Group has therefore entered into the Revised Facilities Agreement to revise the Existing Facilities and extend them to 30 June 2014 on improved terms, conditional on receipt by the Lending Group of the proceeds of the Rights Issue.

The Directors believe that the combination of the Revised Facilities and the Rights Issue should have the following benefits for Pendragon:

(a) The proceeds of the Rights Issue will allow the Group to improve its level of financial indebtedness towards the previously stated long-term Debt: Underlying EBITDA ratio target of 2:1, which the Directors believe will constitute an immediate and long-term benefit to Pendragon.

(b) The reduction in debt and improved terms under the Revised Facilities significantly reduce the overall cost of debt finance.

(c) The extended maturity profile of the Group's borrowing facilities together with the improving credit metrics of the Group should facilitate refinancing of the Revised Facilities ahead of the revised maturity date of 30 June 2014.

(d) A more robust capital structure will enable the Group to continue to maintain investment in the profitable growth of the business.

(e) Given the use of proceeds of the Rights Issue to improve the Debt: Underlying EBITDA ratio it should be possible for the Company to resume paying dividends in relation to its 2012 financial year onwards, which is earlier than would otherwise have been the case.

4.  Use of Rights Issue proceeds

The Rights Issue will significantly strengthen the Group's balance sheet. Receipt of the funds from the Rights Issue will be applied immediately to prepay and cancel debt commitments in accordance with the terms of the Revised Facilities Agreement, thus reducing the Group's overall debt facilities from £430 million to £360 million.

5.  Principal terms of the Rights Issue

Pendragon is offering up to 751,577,623 New Ordinary Shares by way of rights to Qualifying Shareholders (other than, subject to certain exceptions, Restricted Shareholders) on the basis of

9 New Ordinary Shares for every 8 Existing Ordinary Shares

held on the Record Date at the Issue Price of 10 pence per New Ordinary Share, payable in full on acceptance by no later than 11.00 a.m. on 16 August 2011.

The Issue Price of 10 pence per New Ordinary Share represents:

§ a 54.0 per cent. discount to the Closing Price of an Existing Ordinary Share on 13 July 2011 (being the latest practicable date prior to the date of publication of this announcement); and

§ a 35.6 per cent. discount to the theoretical ex-rights price of 15.5 pence per Existing Ordinary Share, based on such Closing Price.

The Rights Issue is conditional, amongst other things, on the passing without material amendment of the Resolution at the General Meeting and the Underwriting Agreement having become unconditional.

It is expected that Admission will become effective and that dealings in the New Ordinary Shares will commence on the London Stock Exchange, nil paid, at 8.00 a.m. on 2 August 2011.

The Rights Issue has been structured in a way that is expected to have the effect of creating distributable reserves of approximately 47 per cent. of the net proceeds of the Rights Issue. The Company and RBS Hoare Govett have agreed to subscribe for ordinary shares in Newco, a Jersey incorporated company. Capita will receive monies from Qualifying Shareholders or renouncees taking up New Ordinary Shares under the Rights Issue, as agent for and on behalf of RBS Hoare Govett. Provided certain conditions are met, RBS Hoare Govett will use the proceeds held by Capita on their behalf, to subscribe for redeemable preference shares in Newco. The Company will allot and issue the New Ordinary Shares to those persons entitled thereto in consideration for RBS Hoare Govett transferring its holdings of ordinary shares and redeemable preference shares in Newco to the Company. At the conclusion of the Rights Issue, the Company will own the entire issued share capital of Newco, whose only asset will be its cash reserves, which will represent an amount equivalent to the net proceeds of the Rights Issue. The Company will be able to utilise this amount by Newco redeeming the redeemable preference shares that the Company will hold in Newco or, alternatively, by procuring either that Newco lends the amount to the Company prior to any redemption or that Newco pays a dividend to the Company.

6.  Current trading and prospects

Pendragon's encouraging performance in 2010 has continued into 2011, despite a challenging economic environment. Underlying profit before tax for the five months to 31 May 2011 was £9.0 million, £1.1 million ahead of the same period in the prior year, reflecting the benefits of further increases in new and used vehicle volumes, a strategy of focusing on higher margin business at the expense of, in particular, low margin fleet activity, and the positive impact of operational gearing as management continues to focus on controlling the Group's cost base.

Overall, Pendragon is performing in line with the Board's expectations for the full year.

7.  Dividends

No dividends were paid for the year ended 31 December 2010. Following the Rights Issue, the Debt: Underlying EBITDA ratio will immediately improve towards the Company's previously stated long-term target of 2:1. To reflect receipt of the net Rights Issue proceeds and the implementation of the Pension Deficit Reduction Plan, the Company has set a new Debt: Underlying EBITDA target of below 1.5:1. It is the Board's current intention for the Company to resume paying dividends in relation to its 2012 financial year onwards, subject to the restrictions placed upon the Group by the terms of the Revised Facilities Agreement and taking into account the Group's underlying earnings, cash flows and capital investment plans, the requirement to maintain an appropriate level of dividend cover and the then prevailing market outlook.

8. Pensions arrangements

The Group has reached unanimous agreement with its pensions trustees on the terms of its most recent triennial valuation and on 13 July 2011 entered into binding legal documentation in respect of measures to address the current deficit in the defined benefit schemes. 

Annual updates have been produced by the Scheme Actuary for the six defined benefit schemes (the "Pension Schemes") operated by Pendragon as at April 2011. These show a significant reduction in the combined deficit since April 2010 (from £97 million to £40 million as at April 2011) due to contributions from Pendragon, the impact of RPI/CPI movements and improved market conditions.

Under the previous deficit reduction plan, Pendragon had committed to pay total deficit contributions, currently of £19 million, to the Pension Schemes, based on deficits as at April 2009. Pendragon has recently agreed with the trustees of the Pension Schemes a revised deficit reduction plan, which is intended to address the remaining deficit whilst reducing the current cash contributions made by the Group. The revised deficit reduction plan will unlock significant pension cash flow savings of over £46 million by December 2014. Under the revised arrangements, the Group will provide the Pension Schemes with an investment which generates a predictable asset-backed income for the Pension Schemes. The investment will be in the form of an interest in a Central Asset Reserve ("CAR") created by Pendragon which will own properties which are leased back to Pendragon on long-term leases. The interest in the CAR will entitle the Pension Schemes to the rental income of the CAR for a period of 20 years. The interest is an asset of the Pension Schemes which is recorded at the present value of the income rights. The CAR involves the creation of a partnership between the Group and the Pension Schemes. The Pension Schemes will have recourse to the value of the properties in the event of insolvency of Pendragon.

It is estimated that the current pensions deficit of £40 million will be eliminated by cash contributions made from April 2011 to 19 July 2011 and by the CAR with assets valued at £35 million and with a rental income of £2.5 million per annum. The Group will therefore transfer to the CAR properties valued at £35 million and lease them back from the CAR at an initial annual rental of £2.5 million payable by Pendragon to the CAR. The rentals will increase each year by a fixed amount of 2.25 per cent. As the current combined deficit of the Pension Schemes will be eliminated by the Pension Schemes' interest in the CAR, no further contributions will be made by the Group until the next valuation, expected to be undertaken in April 2012, is taken into consideration. The new arrangements will therefore enable the Group to benefit from lower annual cash contributions than the present arrangements (for example, a reduction in the scheduled payment in 2012 from £18.5 million to £2.5 million) and the Pension Schemes benefit by the immediate reduction in the deficit by the injection of ring-fenced property assets.

The CAR will be fully consolidated within the Group's financial statements. The IAS19 deficit will be largely eliminated by the arrangements. The underlying income statement will remain largely unaffected by the arrangements.

The Group will retain full operational flexibility over the properties.

The documentation implementing the above arrangements is unconditional save for Admission.

9.  Information on debt facilities

The Group has entered into the Revised Facilities Agreement to revise the Existing Facilities and extend them to 30 June 2014 on improved terms, conditional on receipt by the Lending Group of the proceeds of the Rights Issue. See Annex I of this announcement for further details.

10.  Directors' intentions

The Directors are fully supportive of the Rights Issue. Each of the Directors who holds Ordinary Shares intends either to acquire New Ordinary Shares in full or to sell sufficient Nil Paid Rights during the nil paid dealing period to meet the costs of taking up the balance of their entitlement to New Ordinary Shares under the Rights Issue.

ANNEX 1

TERMS OF THE REVISED FACILITIES

In accordance with the Revised Facilities Agreement, the proceeds of the Rights Issue will be applied upon receipt to prepaying and cancelling the Group's debt facilities by £70 million to £360 million in aggregate, with the Group's bank facilities and loan notes being reduced on a pro rata basis. The Rights Issue will enable the Group to restructure its debt facilities, as set out below.

Tranche	Existing Facilities	Revised Facilities
Term Facility	£110 million Margin: LIBOR + 3.25% Maturity: 30 April 2012	£120 million Margin: LIBOR +3.25% Maturity: 30 June 2014
Revolving Credit Facility3	£210 million Margin: LIBOR + 3.25% Maturity: 30 April 2012	£147 million Margin LIBOR +3.25% Maturity: 30 June 2014
US Dollar Notes - Series A	$110 million $ Coupon: 9.310% Maturity: 30 April 2012	$93 million2/£48.9 million hedged equivalent $ Coupon: 9.310% Maturity: 30 June 2014
US Dollar Notes - Series B	$67 million $ Coupon: 9.310% Put option: 30 April 20121	$57million2/£29.9 million hedged equivalent $ Coupon: 9.310% Maturity: 30 June 2014
Sterling Notes - Series C	£17 million Coupon: 9.834% Put option: 30 April 20121	£14.2 million Coupon: 9.834% Maturity: 30 June 2014
Total debt facilities	£430 million	£360 million

Notes

1.   The holders of the US Dollar Notes Series B and Sterling Notes have a put option on 30 April 2012 under the Existing Facilities, with final maturity in February 2014

2.   Effective hedged US$/£ exchange rate of 1.902 on US dollar denominated facilities

3.   A commitment fee of 50 per cent. of the margins above is payable on unutilised bank facilities available under the RCF

The pricing shown above is on the basis that total amortisation payments of £20 million will continue to be made every six months, starting on 30 June 2012, to all debt providers pro rata to their commitment under the Revised Facilities. Debt providers representing 16.2 per cent./£58.3 million of the Revised Facilities have elected not to receive future amortisation payments and will consequently receive enhanced pricing on their commitment, representing an additional 25 basis points on the margins shown above.

Covenants

The Term Facility, RCF and Notes are subject to covenants with respect to debt/EBITDA, absolute EBITDA, fixed charge cover and capital expenditure.

Fees

No annual or termination fees are payable under the Revised Facilities.

An annual Stabilisation Fee of 1 per cent. and a one-off Success Fee of 2.5 per cent. of the total commitments under the Existing Facilities are payable on the earlier of refinancing or maturity. Assuming that the Final Effective Date (as defined below) is 19 August 2011, these fees total approximately £10.3 million. These fees include the pro rating of the annual Stabilisation Fee for the period from 30 April 2011 (the most recent anniversary) until 19 August 2011. This represents a saving of £4.2 million on the fees payable were the Existing Facilities to be refinanced at maturity. This saving is due to refinancing through the Revised Facilities effectively occurring eight and a half months prior to maturity and agreement being reached with all lenders that fees be calculated on total commitments net of equity proceeds (being £360 million), rather than the commitments which would be outstanding at maturity of £410 million.

An arrangement fee is payable on the Revised Facilities Agreement becoming effective. This fee is 1.5 per cent. of the total commitments under the Revised Facilities. Members of the Lending Group electing, irrevocably, not to receive future amortisation payments will receive an additional arrangement fee of 0.5 per cent. of the amount of their commitments.

Make-whole payments to noteholders

Under the Existing Facilities, make-whole payments will be due on the principal repaid of the Series B and Series C Notes consequent on the Rights Issue, to be satisfied by the issue of further notes with the same maturity as the respective underlying notes. There will be make-whole payments due if the Company voluntarily prepays (excluding scheduled pre-payments) any of the Notes under the Revised Facilities prior to 30 June 2014.

Revised Facilities Agreement

The Revised Facilities Agreement is unconditional except for receipt by the Lending Group of the net proceeds of the Rights Issue (which must total at least £70 million) and fees related to the refinancing (which are subject to certain escrow arrangements contained in the Underwriting Agreement), and the delivery of certain customary documentary evidence (the date on which such matters occur being the "Final Effective Date").  The Existing Facilities and the Note Documents set out in the Override Agreement will, inter alia, be amended by way of an amendment and restatement agreement to the Override Agreement and a supplemental override agreement (the "Supplemental Override Agreement") dated 5 July 2011 between Pendragon and the Lending Group (together, the "Revised Facilities Agreement") so that the Group will have the following facilities in place:

(i)            a revolving credit facility in the amount confirmed by the Override Agent to Pendragon on the Final Effective Date (the "New Revolving Credit Facility");

(ii)           a term facility in the amount of £120,000,000 (the "New Term Facility");

(iii)          the Series A Notes, the Series B Notes and the Series C Notes, as amended (the "Amended Notes"),

(the New Revolving Credit Facility, the New Term Facility and the Amended Notes together being the "Revised Facilities").

The Bilateral Facility shall cease to be made available. A new guarantee facility will be provided by The Royal Bank of Scotland plc to Pendragon in an amount of £2,000,000 which will form part of the New Revolving Credit Facility.

Termination Date of the Revised Facilities

The termination date of the Revised Facilities shall be 30 June 2014 (the "Final Maturity Date").

Amendments to the Note Documents

The terms of the Amended Notes shall principally remain as set out in the Note Documents, however the Note Documents will be overridden and amended pursuant to the Revised Facilities Agreement. The rate of interest payable on the principal amount of each series of the Notes shall remain as 9.310 per cent. for the Series A Notes and Series B Notes and 9.834 per cent. for the Series C Notes.

The maturity date of the Amended Notes shall be extended to the Final Maturity Date.

Interest rates

Subject to the enhanced pricing mechanism as set out below, the interest rate applicable to the Term Facility and Revolving Credit Facility will be a cash margin of 3.25 per cent. per annum plus LIBOR and mandatory costs.

Scheduled debt and note reductions

On 3 June 2012, 3 December 2012, 3 June 2013 and 3 December 2013, the New Term Facility and the Amended Notes will be repaid in a maximum aggregate amount on each such date of £20,000,000.

Subject to the election to waive scheduled debt and note reduction referred to below, each Lender and each Noteholder will (as each such party is defined therein) be repaid its pro rata share of £20,000,000 on each repayment date based on the aggregate commitments under the Revised Facilities and on the principal amount of the Amended Notes on that repayment date.

The scheduled debt and note reduction will be applied permanently to reduce the New Term Facility and the Amended Notes.

Enhanced pricing mechanism

Each Lender and each Noteholder (each an "Elective Creditor") may elect to postpone, either all of, or, in respect of a period between one scheduled debt reduction date and the following scheduled debt reduction date, its pro rata share of scheduled debt reduction.

If such an election is made by a Lender, it shall receive an enhanced margin for the relevant period on the Revised Facilities of 3.50 per cent. per annum plus LIBOR and mandatory costs.

An Elective Creditor who makes such an election will receive such postponed amounts on the Final Maturity Date.

Security and guarantees

All existing guarantees granted in respect of the Existing Facilities and the Note Documents and under the Override Agreement shall remain in full force and effect. Pursuant to the terms of the Supplemental Override Agreement, the existing guarantor under the Override Agreement shall confirm that its guarantee will remain in full force and effect notwithstanding the Revised Facilities Agreement.

Security confirmations in the Supplemental Override Agreement have been given by each obligor in the UK in respect of existing security or new security has been entered into. In overseas jurisdictions, security has been confirmed or supplemented.

Covenants

The Revised Facilities Agreement will contain covenants by and restrictions on the Group principally based on those in the Override Agreement, including (subject to certain agreed exceptions) restrictions on granting security, making disposals, mergers or acquisitions, changing the general nature of the business, incurring financial indebtedness, granting guarantees and making loans. Certain amendments will be made to the dividend restriction as set out below, the restrictions on shares and the provision of the cashflow forecast.

The financial covenants have been renegotiated to allow for greater operational flexibility which the directors of Pendragon believe will provide the Group with significantly greater financial flexibility than under the Override Agreement.

Dividends

Pendragon is not permitted to pay dividends unless: (i) it is declared in respect of a financial period ending on or after 30 June 2012, in respect of profits generated after 31 December 2011; (ii) there is no default outstanding under the Revised Facilities Agreement or would result from the proposed action; (iii) the leverage ratio is no more than 2.5:1 on the last measurement date; and (iv) subject to a cap on the aggregate amount of dividends paid equal to 33.33 per cent. of adjusted profits after tax.

ANNEX 2

DEFINITIONS AND GLOSSARY

The following expressions have the following meaning throughout this announcement, unless the context otherwise requires:

"Admission"	the admission of the New Ordinary Shares (nil paid) to the premium segment of the Official List becoming effective in accordance with the Listing Rules and the admission of such shares (nil paid) to trading on the London Stock Exchange's main market for listed securities becoming effective in accordance with the Admission and Disclosure Standards; the Admission and Disclosure Standards of the London Stock Exchange containing, among other things, the admission requirements to be observed by companies seeking admission to trading on the London Stock Exchange's main market for listed securities;
"Admission and Disclosure Standards"	the Admission and Disclosure Standards of the London Stock Exchange containing, among other things, the admission requirements to be observed by companies seeking admission to trading on the London Stock Exchange's main market for listed securities;
"Arden Partners"	Arden Partners plc;
"Banks"	Arden Partners, Barclays Capital, RBS Hoare Govett and Rothschild;
"Barclays Capital"	Barclays Capital, the investment banking division of Barclays Bank PLC;
"Board"	the board of directors of the Company;
"Capita" or "Capita Registrars"	a trading name of Capita Registrars Limited;
"Closing Price"	the closing, middle market quotation of an Existing Ordinary Share, as published in the Daily Official List;
"Company" or "Pendragon"	Pendragon PLC;
"CREST"	the relevant system, as defined in the CREST Regulations, for paperless settlement of share transfers and the holding of shares in uncertificated form (in respect of which Euroclear UK is the operator as defined in the CREST Regulations);
"CREST Regulations" or "Regulations"	the Uncertified Securities Regulations 2001 (SI 2001 No.3755), as amended;
"Daily Official List"	the daily record setting out the prices of all trades in shares and other securities conducted on the London Stock Exchange;
"Directors"	the current Executive Directors and Non-executive Directors of the Company;
"Enlarged Share Capital"	the issued share capital of the Company following completion of the Rights Issue;
"Existing Ordinary Shares"	the fully paid Ordinary Shares of 5 pence each in the capital of the Company;
"Existing Facilities"	the Revolving Credit Facility together with the Term Facility and the Notes;
"Excluded Territories" (and each an "Excluded Territory")	the US, Canada, Japan, Australia and the Republic of South Africa and any other jurisdiction where the extension or availability of the Rights Issue (and any other transaction contemplated thereby) would breach any applicable law or regulation;
"Financial Services Authority" or "FSA"	the Financial Services Authority of the UK in its capacity as the competent authority for the purposes of Part VI of FSMA and in the exercise of its functions in respect of admission to the premium segment of the Official List otherwise than in accordance with Part VI of FSMA;
"FSMA"	the Financial Services and Markets Act 2000;
"General Meeting"	the general meeting of Pendragon to be held at the offices of CMS Cameron McKenna LLP, Mitre House, 160 Aldersgate Street, London EC1A 4DD on 1 August 2011 at 10.00 a.m;
"Group"	the Company and each of its subsidiaries and subsidiary undertakings from time to time;
"Issue Price"	10 pence per New Ordinary Share;
"Joint Underwriters"	RBS Hoare Govett, Barclays Capital and Arden Partners;
"Lending Group"	Barclays Bank PLC, Lloyds TSB Bank plc, The Royal Bank of Scotland plc, Allied Irish Bank plc, National Australia Bank Limited a.b.n., Norddeutsche Landesbank Girozentrale, The Governor and Company of The Bank of Ireland, Alliance and Leicester Commercial Bank, DBS Bank Ltd, Mizuho Corporate Bank Ltd, Co-operative Bank plc, Banco Popolare s.c., Bayerische Landesbank Commerzbank Aktiengesellschaft, KBC Bank n.v., Sumitomo Mitsui Banking Corporation Europe Limited, Goldman Sachs, C.M. Life Insurance Company, Massachusetts Mutual Life Insurance Company, John Hancock Life Insurance Company, John Hancock Life & Health Insurance Company, Principal Life Insurance Company, Beneficial Life Insurance Company, The Prudential Insurance Company Limited, Prudential Retirement Insurance Annuity Company, Prudential Annuities Life Assurance Company, Pruco Life Insurance Company of New Jersey, The Prudential Assurance Company Limited and The North Western Mutual Life Insurance Company;
"Listing Rules"	the listing rules made by the FSA under Part VI of FSMA (as amended  from time to time);
"London Stock Exchange"	London Stock Exchange plc;
"Newco"	Pacific Funding (Jersey) Limited, a company incorporated in Jersey;
"New Ordinary Shares"	the new Ordinary Shares of 5 pence proposed to be issued by the Company pursuant to the Rights Issue;
"Nil Paid Rights"	rights to acquire New Ordinary Shares, nil paid, provisionally allotted to Qualifying Shareholders pursuant to the Rights Issue;
"Note Documents"	(i) the separate note purchase agreements dated as of 25 February 2004 (as amended by a first amendment agreement dated as of 30 June 2006, a waiver and second amendment agreement dated as of 22 December 2008, a third amendment agreement dated as of 27 February 2009 and a waiver and fourth amendment agreement dated as of 27 March 2009 and the Override Agreement (as defined below)) between Pendragon and the noteholders listed in Annex 1 to the third amendment agreement, in respect of: (A) US$110,000,000 9.310 per cent. Guaranteed Senior Notes, Series A, due 30 April 2012 (the "Series A Notes"); and (B) US$67,000,000 9.310 per cent. Guaranteed Senior Notes, Series B, due 25 February 2014 (the "Series B Notes"); (ii) the note purchase agreement dated as of 25 February 2004 (as amended by a first amendment agreement dated as of 30 June 2006, a waiver and second amendment agreement dated as of 22 December 2008 and a third amendment agreement dated as of 27 February 2009 and a waiver and fourth amendment agreement dated as of 29 March 2009 and the Override Agreement (as defined below)) between Pendragon and certain noteholders in respect of £17,000,000 9.834 per cent. Guaranteed Senior Notes, Series C, due 25 February 2014 (the "Series C Notes") in each case as amended by the Override Agreement;
"Notes"	the Series A Notes, the Series B Notes and the Series C Notes (each as defined in the above definition);
"Official List"	the Official List of the UK Listing Authority;
"Ordinary Shares"	ordinary shares of 5 pence each in the capital of the Company;
"Override Agreement"	an override agreement dated 30 April 2009 entered into between, amongst others, Pendragon, various of Pendragon's subsidiaries as original guarantors,  the Original Creditors (as defined therein), The Royal Bank of Scotland plc as facility agent under the Syndicated Facilities Agreement (the "Existing  Agent"), The Royal Bank of Scotland plc as override agent and security trustee under the Override Agreement (the "Override Agent") and The Royal Bank of Scotland plc and Barclays Bank PLC as issuing banks;
"Pensions Arrangements"	the arrangements described in paragraph 8 of this announcement;
"Prospectus"	the document dated 14 July 2011 comprising a circular and a prospectus relating to the Company for the purpose of the Rights Issue (together with any supplements or amendments thereto);
"Qualifying Shareholders"	holders of Ordinary Shares on the register of members of the  Company at the Record Date;
"RBS Hoare Govett"	RBS Hoare Govett Limited;
"Record Date"	close of business on 28 July 2011;
"Restricted Shareholders"	Qualifying Shareholders having registered addresses in, or resident or located in, any of the Excluded Territories;
"Revised Facilities Agreement"	an amendment and restatement agreement to the Override Agreement between the Company and the Lending Group;
"Revolving Credit Facility" or "RCF"	a revolving credit facility of a total amount of £210,000,000 made available pursuant to the terms of the Syndicated Facilities Agreement and the Override Agreement;
"Rothschild"	N M Rothschild & Sons Limited;
"Shareholders"	holders of Ordinary Shares;
"subsidiary"	a subsidiary, as that term is defined in section 1159 of the Companies Act 2006;
"Syndicated Facilities Agreement"	the facilities agreement dated 3 December 2005 between, among others, Pendragon and The Royal Bank of Scotland plc (as facility agent), as amended or novated, supplemented, extended or restated from time to time;
"Term Facility"	a term loan facility of a total amount of £210,000,000 made available pursuant to the terms of the Syndicated Facility Agreement and the Override Agreement;
"UK Listing Authority" or "UKLA"	the FSA in its capacity as the competent authority for the purposes of Part VI of FSMA and in the exercise of its functions in respect of the admission to the premium segment of the Official List otherwise than in accordance with Part VI of FSMA; recorded on the relevant register of the share or security cfoncerned as being held in uncertificated form in CREST and title to which, by virtue of the CREST Regulations, may be transferred by means of CREST;
"Underwriting Agreement"	the agreement between the Company and the Banks dated 14 July 2011; and
"US Securities Act"	the US Securities Act of 1933, as amended.

 

END

 

 

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