Colonial Completes First Ever Debt Issue By A RE Company

28 May 2015 – Expansión

Colonial placed €1,250 million, but demand exceeded €2,700 million. The real estate company, controlled by the Villar Mir group will use these funds to refinance a bank loan, whereby reducing its financing costs.

Colonial debuted on the bond market yesterday with great success. The real estate company controlled by the Villar Mir Group completed a debt issue amounting to €1,250 million in two tranches: one over four years amounting to €750 million and the other over eight years for €500 million. It paid 1.864% for the first issue and 2.728% for the second.

This is the first debt issue ever to be carried out by a Spanish real estate company and it comes in the middle of the election hangover, which has generated considerable volatility on the markets. The debt issue aroused significant interest (demand exceeded €2,700 million with 225 purchase orders in total), which clearly shows that the confidence of investors has returned to a sector that was hit hard by the crisis (the real estate sector) and above all, to this company in particular, which underwent a tough refinancing process last year.

Lower costs

In fact, Colonial will use the funds obtained to repay a syndicated loan that it signed last year amounting to €1,040 million, which carries a high interest rate, at 400 basis points above 3-month Euribor, and which represents 40.5% of its liabilities. Sources close to the company explained yesterday that this refinancing with result in an annual saving of almost 2%. “The real estate company will stop paying around €20 million per year in interest”, they added. Moreover, the same sources noted that the company, chaired by Juan José Brugera, will no longer be bound by the conditions imposed by the banks, given that “the debt market has granted this financing with no conditions attached”.

To ensure the success of the issue, the CEO, Pere Viñolas and the Corporate Development Director, Carmina Ganyet, launched a road show on 14 May with the banks that they had engaged for the transaction: Morgan Stanley acted as the global coordinator, with the support of Sabadell, BBVA, CaixaBank, Crédit Agricole, ING and JP Morgan. The executives were well received, since S&P had assigned the company a ‘BBB-‘ rating.

As well as the plan to repay the loan to reduce financing costs, Colonial may improve its balance sheet in advance of possible M&A activity in the short term. Sacyr has considered the option of integrating its subsidiary Testa with Colonial to create a large real estate group. Colonial has been authorised to issue more bonds, amounting to €750 million.

Operation “Fade”

In addition to the activity in the private sector, the Government also plunged itself into the quest yesterday with the issue of a ‘fund to cover the electrical hole’ (“fondo que cubre el agujero electric” or Fade). It placed €1,300 million in securities that mature in September 2019, with the help of Santander, BBVA, Barclays and Citi.

The Administration is continuing to refinance this debt, which the vehicle has issued since its creation in 2009, to cover the electrical deficit (which arises due to the mismatch between the revenue received by the companies, from electricity tariffs, and the costs of generating it) at much more favourable costs. For this issue, it has only paid 0.85%, the lowest rate since the vehicle was created.

Meanwhile, the Sociedad Concesionaria Autovía de la Plata, owned by Meridiam (50%), Cintra (25%) and Acciona (25%) launched its first bond issue without a public guarantee in Spain yesterday, for €184.5 million. It is paying 3.169% for these securities, which are being traded on the MARF.

Original story: Expansión (by D. Badía and M. Anglés)

Translation: Carmel Drake