Helical Bar 6% 2020

Out of the blue!

"HELICAL TO REDUCE DEBT AND LOWER FINANCE COSTS USING PROCEEDS OF RECENT SALES

Helical has today announced its intention to redeem its £80.0m 6.00 per cent bonds on 2 March 2018 in line with its plans to reduce debt and its annual finance costs.

The bonds were issued on 24 June 2013 with a maturity date of 24 June 2020. Based on the closing price of the benchmark gilt on 19 January 2018, the aggregate redemption price is expected to be circa £89.0m, a premium of £9.0m over the aggregate issue price of the bonds. The redemption price of the bonds will be calculated at 11.00 a.m. on 28 February 2018 based on the benchmark gilt at that time plus a 0.5 per cent. margin, in accordance with, and as described in further detail in, the terms and conditions of the bonds. Following the redemption of the bonds, the Company's future interest payments are expected to reduce by £11.1m (£4.8m pa) in the period to 24 June 2020, a net saving of £2.1m.

Helical has also increased an existing loan facility with Aviva Investors, adding its investment assets at The Loom, London E1 and Churchgate and Lee House, Manchester to Shepherd's Building, London W14. The £124m facility releases £45m of cash to Helical and is a mix of fixed rate and new floating rate debt. The loan is due for repayment in December 2024 and will carry an initial interest rate of 3.28%, with interest on £31m varying with movements in 3 month LIBOR.

Since 30 September 2017 Helical has also:

- Repaid its fully drawn £102m facility with Deutsche Pfandbriefbank AG, previously due to be repaid in August 2020;

- Transferred its £60m facility (£45m drawn) with HSBC to the purchaser of its retirement village portfolio, previously due to be repaid in August 2020.

Once completed, the loan and bond repayments, net of the increased facility with Aviva Investors, will reduce annual finance costs by circa £8.9m.

Tim Murphy, Finance Director, said: "We have used the proceeds of recent sales to substantially reduce the Company's gross borrowings and annual finance costs. In addition, I am pleased to have secured longer-term debt with Aviva Investors for two of our core investment properties. These actions are part of our approach to maintaining capital discipline whilst providing flexibility to allow us to pursue our business strategy.""

Comments

  • Sold 30,000 at 110.11 - why wait?
  • Any further thoughts on whether to wait until final redemption in March or sell now at around £1.1010.? Looks to me at the moment better to wait for that possible extra 1 point but maybe i'm missing something ? ( i realise the retained gilt price could change somewhat between now and the redemption ). Thanks all.
  • I have tried top play it both ways and I have sold those in my SIPP but have held onto the ones in my ISA just in case. An advantage of holding out is the extra few weeks of interest, plus presumably no dealing fees and holding off the problem is what to reinvest in.
  • Good idea Noiansleft and i was considering the same basically -when in doubt sell out ( well half ).See the price softened a little today.
  • Does anyone know what price this means they'll redeem at? I see the price has shot up so I assume it will be around £1.10, why not at par?
  • Think the early redemption in March will be around the £1.1090 mark based on the current linked gilt price. Also we will earn the coupon of 6% p.a. until then. The risk is that gilts and in particular the 'linked gilt' to the bond ( Treasury 4.25% 2020 now a 'stripped' gilt ) will fall in value before the 'event date' in February whereby Helical will fix the redemption price in consideration to the price on that day of the linked gilt.This methodology is explained in the Helical Bar prospectus and the RNS guide which can be found on LSE ORB page.
    If anyone knows any differently please comment especially on the current price with regard to the linked gilt.Thanks
  • Thanks for the explanation sussexmade
  • The other point about why it is not redeemed at par is to protect the bondholders like us. If companies could redeem whenever they wanted at par then it would be risky paying over par for a bond as you could make an immediate loss.

    So the early redemption price has to be linked to current bond prices and yields (in this case it is based on the gilt with an equivalent redemption date) and should also effectively offer some degree of compensation. If they want to remove their obligation to pay interest to us for the next 2 years then it should be at a fair price in this case around 6% higher than the bond was trading.
  • Well said Frugal, you've nailed it.Yogibear please note that the linked ( 'benchmark' ) gilt is indeed Treaury 4.75% not 4.25% as i stated wrongly.
    See the stock moved lower today just a tad and interestingly see the puchases are in lots of 25000 so presumably this is Helicals brokers/agents mopping up relatively cheap offers that will save the company maybe 0.5/1.0 basis point at the time of redemption rather than at the full price in early March.( still calculates on todays maths around 1.1090 i think ).
  • The redemption for my holding was paid into my YouInvest account yesterday
    Price given 110.85, plus a coupon payment
  • Mine was paid into H.L. late Monday and yes around the 110.85 mark along with updated interest.
    Where to put the proceeds ?
  • Sussexmade, good question re the proceeds
    In the past month I have sold any longer dated (Beyond 2023) corporate bonds, in particular the Charity bonds, and thus increased my cash holding (concern over future inflation).
    After the small market adjustment at the start of February, I'm expecting further adjustments as the USA continue increasing their interest rates. Hope to buy when the markets have taken a good 10% drop.
  • Thanks Shaunm very interesting. I am thinking along the same lines though was a bit surprised to read in the week end before last ( Times i think ) that in the USA there is ' a wall of money' awaiting to enter/re-enter bonds as the yields are starting to look attractive again, close to 3.25% ( my memory tells me ) and as such with shares looking vulnerable being a fair bet. I know thats the U.S. and we are behind the curve with our yields but are we maybe just 5% to go to seeing our own ' wall of money' being invested across bonds. ?
  • Shame I did't sell my Preference Share holdings at the same time I sold the long dated Bonds after Aviva's announcement last Thursday, planning to cancel their Pref shares at par!
    I could have picked them up yesterday at bargain prices! However I knew "Banks & Insurers" tend to do better with higher interest rates, therefore a better & safer security, thus margins above long term gilts would reduce!
    However it seems Aviva PLC had too much cash to spare!
    Never any certainty in the world of investing! (hence the importance of a well diversified portfolio).
    It seems now that "Deflation" could still take a grip in Europe, although rising US rates are likely to cause turmoil in the equity markets
    Suggest keep ready pot of cash for any opportunities during these uncertain times ahead
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