Capital & Regional seeks consents to extend, amend Mall Fund floaters

By Angela McDaniels

Tacoma, Wash., June 10 - Capital & Regional plc has begun a consent solicitation to restructure the £1,076,900,000 of Mall Fund secured floating-rate notes due April 2014, according to a company news release.

Capital & Regional owns 16.7% of the fund and acts as property and asset manager. The notes were issued by Mall Funding plc, a special-purpose vehicle.

There is an inter-company loan from Mall Funding to Mall LP - in the same amount as the notes - that matures in April 2012.

The fund has been in negotiations with an ad hoc committee of noteholders who hold or control approximately 45% of the notes. Capital & Regional said the committee members have confirmed that they are supportive of the proposals.

The key elements of the proposed restructuring are:

• The maturity date of the inter-company loan will be extended by three years to 2015;

• The maturity date of the notes will be extended to 2017;

• The margin on the notes will be increased to 0.68% from 0.18% beginning in April 2011;

• The mandatory amortization requirement for the inter-company loan will be reduced to an amount equal to or less than £800 million by December 2012 and £600 million by December 2014;

• A £155 million cash contribution from retained cash held in the partnership account will be made. Of this, £50 million will be applied on closing to the prepayment of the inter-company loan and £85 million to fund leasing incentives, capital expenditure and working capital reserves. The remainder will cover swap breakage costs, consent solicitation fees, various costs of the transaction and contingencies;

• The LTV covenant (defined as outstanding debt divided by gross property value) will be tested from December 2011 and will require that the LTV is equal to or less than 83% in December 2011, 77% in December 2012, 71% in December 2013 and 65% in December 2014;

• The current release price mechanism will be suspended until the LTV is at 60% or below and the debt outstanding is equal to £600 million or less. Subject to other conditions being met, this will allow sales of properties where the proceeds received would be below the historically determined release price; and

• Distributions will be restricted until total debt outstanding is £600 million or less and the LTV is 60% or less.

The company is offering a consent fee of 25 basis points.

Simultaneously with the launch of the consent solicitation process, unitholders in the Mall Fund will be asked to vote on an extension of the fund to June 30, 2017.

Capital & Regional expects that the unitholder vote and the bondholder vote will take place in the weeks beginning July 5 and July 15, respectively.

The completion of the restructuring is conditioned on both votes being successful. Holders of 75% of the notes must attend the meeting and 75% of the votes cast must be in favor of the resolution in order for it to pass.

For the unitholder meeting, there is a voting threshold of 85%.

The company said that the objective of these proposals is to best position the fund for refinancing and that a maturity extension is needed to allow the fund to delever over time. The proposal will also give the fund the flexibility to sell assets below current release prices and use the proceeds to delever.

Morgan Stanley & Co. International plc (+44 0 20 7677 5040) is the consent solicitation agent.

The Mall Fund invests in community malls in the United Kingdom. It was founded by Capital & Regional, a property asset manager based in London, and Aviva Investors.

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