Canary Wharf Group, the Docklands property developer, has offered to buy back £185m of its securitised debt from bond holders at discounts of up to 85 per cent of face value to take advantage of the prices being offered on illiquid corporate debt.
Canary Wharf Finance II, the securitisation through which £2.5bn of bonds have been issued that back much of the Canary Wharf estate, on Thursday offered to repurchase bonds at substantial discounts from holders in three classes of notes.
The prices being offered vary between 15 and 50 per cent of face value depending on the class, showing how far its bonds have fallen. Morgan Stanley and Lazard are managing the deal, and Deutsche Bank is acting as the tender agent.
There is very little liquidity in the secondary market for such securitised corporate debt, which could mean that the institutional holders of Canary Wharf notes may take the discounted rates as the only quick option to exit from the transaction. The notes are held by a range of institutions, including pension funds, hedge funds and insurance companies.
Canary Wharf, which has cash on its balance sheet, said the move represented an attractive investment opportunity and would also reduce the net cost of debt for the group. Canary Wharf is expected to keep the notes – effectively paying interest to itself – rather than cancelling them.
The move is unusual in the commercial mortgage-backed securities market, partly because not many property companies have the cash to buy back their own bonds, although experts forecast more companies will look to exploit pricing in the sector in future as a means to deleverage their balance sheets.
The move is not related to the debt difficulties facing Songbird Estates, Canary Wharf’s majority shareholder, which last week said it was close to breaking covenants on a £880m loan. Rothschild has been appointed to advise Songbird on its refinancing options.
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