LONDON-Land Securities is planning a euro 3.5-billion ($4.3-billion) refinancing of debt in a bid to lower the cost of its borrowing and allow it to focus on earnings growth. The issue would replace the euro 2.7 billion ($3.3. billion) of bonds outstanding and has been described by the company as a new, hybrid “structured corporate financing,” rather than a straightforward securitization.

Traditionally, securitization involves the company creating off-balance-sheet special-purpose vehicles that pay bondholders from the rent from specific properties. In this case, LandSec is not using SPVs and will pay interest from a pool of properties worth about euro 8.8 billion ($10.9 billion) or three-quarters of its entire estates.

“With securitization you put a solid line around the assets,” says chief executive Francis Salway. “What we have here is a loose dotted line around the very large pooling of assets.” Investors in the new bonds would be protected by restrictive covenants if the company’s loan-to-value ratio rose above 65%.

LandSec, Britain’s largest property company with assets of euro 11. 8 billion ($14.5 billion), is currently geared at 40% and while this is not particularly high by property-company standards, the company is carrying debt with relatively high interest rates. But such deals come with a price. LandSec will take an exceptional euro 971 million ($1.2 billion) in its full-year results because of the deal but thereafter will save euro 35 million ($43.5 million) a year on interest repayments.

Analysts suggest the move could lead to an upgrading of Land Securities’ credit rating. Moody’s Investors Service rates the group A3 while Standard & Poor’s has it at A-minus.

British Land was one of the first European companies to use securitization on property, but its 1999 offer concerned bond investors because it was seen to disadvantage holders of its senior unsecured debt.

One analyst says: “There are questions about securitization, but from the company’s point of view it has the major advantage of enabling them to access a wider range of investors overseas and in the UK.”

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