Private equity group Terra Firma, which is chaired by founder Guy Hands, has closed a £4 billion ($5.2 billion; €4.5 billion) refinancing of its UK housing platform, the Annington Group, through a combination of fresh debt and equity, PDI sister publication Real Estate Capital has reported.
In addition to issuing £3 billion of corporate bonds and sourcing £400 million in bank loans, the firm has raised £550 million from existing investors through its Terra Firma Special Opportunities Fund 2, to contribute fresh equity to the group.
Barclays and JP Morgan were mandated as joint lead managers on the bond issue.
The recapitalisation allows Terra Firma to refinance securitised debt held against the housing portfolio, which had a 2021 maturity. Last week, Annington Group investors passed an extraordinary resolution to allow the firm to redeem the Annington Finance No. 1 and No. 4 CMBS deals, which had outstanding balances of £168.86 million and £2.48 billion respectively.
The firm said in a statement that it has replaced the securitised debt with an investment-grade financing with staggered maturities out to 2047, in addition to the new equity.
The new capital structure will lower Annington’s cost of borrowing, extend its debt maturities and increase its operational flexibility, the firm said. It will also provide growth capital to allow it to invest in the UK’s private rented residential sector, it added.
Annington was created in 1996 to acquire 57,400 homes from the UK’s Ministry of Defence, the majority of which were subsequently leased back to the ministry. Annington refurbishes and then sells or rents those properties which are surplus to the ministry’s requirements. In total, Annington owns around 40,000 homes.
Hands was behind the 1996 purchase of Annington while an investment banker at Nomura International. His private equity firm acquired Annington from Nomura in 2012 for £3.2 billion. The deal comprised £1 billion of equity from a Terra Firma specialist fund, plus debt financing and assumed existing debt totalling £2.2 billion.
“When we acquired Annington in 2012, we always knew there was a single issue that would hold the business back – its legacy capital structure,” explained Terra Firma CEO Andrew Géczy.
“Today’s announcement is a result of Terra Firma moving quickly to take advantage of favourable market conditions. This deal puts Annington on a strong financial footing and positions it for growth. We are delighted with the strong demand we have seen from large institutional investors across both the equity and the debt elements of the transaction,” Géczy added.
Terra Firma previously owned a German housing platform – Deutsche Annington – which it bought in 2001. The firm was floated on the Frankfurt Stock Exchange in 2013 and is now branded as Vonovia.
In December 2012, Deutsche Annington was subject to a major refinancing, when outstanding debt securitised in the GRAND CMBS – Europe’s largest CMBS deal, issued in 2006 – was reduced from €4.3 billion to €3.8 billion and the profile of the notes was extended to 2018. In July 2013, Deutsche Annington repaid the remaining GRAND notes, substituting the debt with unsecured corporate bonds.