How One Company Is Sidestepping Its Refinancing Risk

Unibail-Rodamco-Westfield is offering par swaps on almost $1.4 billion in hybrid notes.

Unibail-Rodamco-Westfield, which came together in 2018 to create as the companies claimed the “world’s premier developer and operator of flagship shopping destinations,” is offering fixed income investors an “any-and-all par-for-par” exchange of $1.37 billion in existing 2.125% hybrid notes for a new issuance with a 7.25% coupon and cash amount.

An unusual move tied to a key aspect of the company’s strategy: deleveraging its financial exposure to the US.

In full-year 2021 and 2022 financial statements, U.S. operations presented the highest non-recurring activities losses and, subsequently, the largest annual losses of any other territory.

The company says that given current market conditions, it decided against exercising its option to call the existing notes on the first reset date of October 25, 2023.

The call feature is used by issuers to hedge against a drop in interest rates. If rates drop, by calling a bond, the issuer can refund principal at a specific date and then reissue at a then-lower interest rate, saving cash flow.

In the current atmosphere of higher interest rates, calling the loan may not make sense. It would require much higher payments given jumps in financing costs. As Bloomberg reported, the prices of CRE hybrid bond prices have plunged.

“After careful evaluation of the current restrictive hybrid primary market conditions, the Group has decided not to exercise its option to call the Existing Notes,” the company said.

“Understanding the impact of this decision on fixed income investors and considering the interest of all its stakeholders, the Group has decided to offer an alternative to remaining invested in the Existing Notes,” it continued. “Accordingly, the Group is today announcing an any-and-all par-for-par Exchange Offer in respect of the Existing Notes into a combination of (i) new hybrid notes with a coupon of 7.25%, and (ii) a Cash Amount (where applicable). The Cash Amount will result in a reduction of the Group’s overall hybrid portfolio, and will not exceed €200 Mn i.e. 10% of the outstanding aggregate hybrid portfolio.”

The move is subject to achieving a minimum new issue size of $546 million. Notes that holders don’t exchange will reset on October 25 “to the aggregate of the then prevailing 5-year Mid-Swap Rate and the Relevant Margin, which is 1.675% per annum.”

Decisions about calling other hybrid instruments will happen “closer to their respective first call date.”

“The Exchange Offer will not be open to U.S. persons or to any person in the United States or any other jurisdiction where it is unlawful to make such an offer or distribute any documentation related to such an offer.”