Land Secs plans £1.8bn bond

Issue would pay for acquisition of 6,700 BT properties, writes Clayton Hirst
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The Independent Online

Land Securities, Britain's largest quoted property company, is planning to issue a record £1.8bn bond to fund its acquisition of 6,700 properties owned by BT.

The FTSE 100 company is understood to be close to choosing an investment bank to market the bond and will launch a road show to meet potential investors in the third week of November.

The bond will be backed by the cash flow from the properties, in what will be the largest asset-backed security issued by a British property company. The issue will be bigger than British Land's securitisation of the Broadgate office complex in London and Canary Wharf Group's securitisation of slices of its Docklands estate. But the record for the largest asset-backed bond lies with Welsh water company Glas Cymru, which raised just under £2bn earlier this year.

Land Securities is seeking an AAA credit rating for around 50 per cent of the issue. It is planning to pay an insurance company to guarantee half the issue, in a process called "monoline wrapping".

Because 73 per cent of the property portfolio is made up of telephone exchanges, still in demand from telecoms companies wishing to offer high-speed internet services, the remainder of the bond is expected to receive a high rating.

Land Securities is buying the £2.3bn property portfolio through its facilities subsidiary, Trillium, in partnership with William Pears Group. The joint venture company, named Telereal, also plans to raise between £300m and $400m in bank debt.

But a question mark still hangs over the future of the deal. BT and Land Securities are bickering over the legal details, which both parties had hoped to finalise last month.

BT is creating a special-purpose company to hold the assets and the 650 staff who manage the properties, which will then be sold to Land Securities. It is understood the dispute centres on the structure of the company. Land Securities is keen to finalise that swiftly so it can make presentations to credit rating agencies Standard & Poor's and Moody's, to prepare for the bond. Sources close to the deal reveal that patience on both sides is wearing thin and if an agreement cannot be made within a month, the deal could be derailed.

Some observers suggested that BT's hunger for the sell-off is fading because it has now reduced its debt mountain. When the deal was first announced in January, BT had £30bn in debt, which it has since reduced to £17.5bn. But BT and Land Securities say the deal is still on track for completion before 2002.

Both companies are also coming under pressure from the Communication Workers Union to open detailed discussions over the employment terms for the staff to be transferred to Telereal. The CWU is unhappy that some staff haven't been offered alternative jobs with BT. The staff have been told their attractive final salary pension schemes remain intact.