Bruntwood considers new property bond in exchange for existing 6 % bonds due in 2020

Bruntwood Property Bonds

Manchester-based property group Bruntwood has announced this morning that it’s asked bond brokers Peel Hunt and City and Continental to organise a series of meetings with sterling bond investors.

The meetings which take place between the 16th and 24th of January are being held to establish what demand there might be for a new issue of fixed-rate unsecured debt from Bruntwood, via a retail bond issue.

The company has developments and properties across the north of the country, principally in Manchester and Leeds. It controls well over a billion pounds of assets split between 100 different properties with, according to the company’s website, a further £1.4 billion worth of development in its pipeline.

Bruntwood’s focus is co-working and scientific spaces, but it also has several flagship retail and leisure clients across its portfolio. As well as a very interesting but relatively new joint venture with insurance giants Legal and General.

Impressive previous figures from Bruntwood

Last week Bruntwood reported figures for the period ending  September 2019 which showed that turnover at the group had increased by an impressive +16.60 % to £160.1 million.

The value of the group’s total assets rose by £100 million to £1.40 billion and Bruntwood made a pretax profit of £52 million, a gross margin of 32% which is surely not to be sniffed at.

The numbers were lower than in the comparable period from 2018 but Burntwood’s management was quick to point out that they were achieved with a much lower level of risk or gearing in the business. 2019s performance requiring just one-third of the capital commitments seen in the previous year.

Upbeat Bruntwood management

Bruntwood Chief executive Chris Oglesby was upbeat about the numbers saying that

“In a year where the UK saw a sharp fall in inward investment as a result of the uncertainty over Brexit, we invested a record amount in creating places for businesses to thrive, reflecting our belief in the underlying strength and potential of great cities like Birmingham Liverpool, Leeds and Manchester”

Bruntwood will shortly discover if the UK’s bond investors share that optimism.

Not their first rodeo into Bruntwood Bonds

Bruntwood is not new to London’s retail bond market it tapped investors for £50 million back in 2013, with a seven-year issue that carries a coupon of 6%. Those bonds are coming up for redemption in late July, and indeed if Bruntwood does issue new paper then holders of the 2020 bonds may well have the opportunity to exchange their existing holdings for the new issue.

What might the terms of the new Bruntwood bond be?

If there is an appetite among retail bond investors and their agents for fresh issuance from Bruntwood, then what terms might be achieved?

The current bonds have traded at a fraction above par this morning, which could suggest that a similar coupon will be the order of the day.

Although the potential for lower interest rates here in the UK, post-Brexit, and Burntwood’s seven-year track record may allow it to shave the coupon, or to get any issue away above par and thus with a lower effective yield.  However, the retail bond market can be quite fickle and does not always follow the wider fixed income markets or at least often has a delayed reaction.

Retail bonds previously overlooked by investors

It’s a shame that retail bond issuance in London doesn’t get wider publicity. It’s a regulated market with an order book on the London Stock Exchange. This is a far cry from the unregulated mini-bond market which has grabbed the headlines recently for all the wrong reasons, including the LCF scandal.

We hope that in the wake of LCF and other questionable behaviours, among mini-bond issuers, investors looking for income will now consider putting some money into regulated issuance rather than into over-hyped get rich quick schemes.

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