HCohen schreef op 13 juni 2023 08:39:
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Men gaat dus voor hogere Areps ipv het maximale positieve effect op LTV door buy-back 'below par'
zie bijdrage SA van 30 okt 2022seekingalpha.com/article/4550846-unib... The Debt Buyback OpportunityGiven the continued rise in interest rates (which admittedly should be peaking in the near future) and after the bird's eye overview of the total impact of refinancing (4.5 EUR/share in AREPS pre-indexation) in my previous article, I decided to dive deeper and see what is the potential to repurchase debt at a discount.
As things stand, all of URW's bonds trade below par, some significantly so:
Since URW is a significant issuer of debt, it has a whole section on its website dedicated to debt investors. Given the current interest rate environment and the fixed interest rate nature of its debt, URW has two main options:
1.
Focus on higher AREPS. This will entail paying back near-term debt at par and allowing the below-market interest rates on its long-term bonds to boost AREPS. This option also results in a better interest rate coverage ratio but a higher loan-to-value ratio(vs option 2).
2. Focus on lower loan-to-value. This will entail drawing down on current liquidity and/or refinancing near-term maturing debt at higher market interest rates, while using current earnings and/or disposal proceeds to retire long-term debt below par. This option will result is an inferior interest rate coverage ratio as compared to option one, but a better lower loan-to-value ratio.
For example, its XS0942388462 2.5% bond maturing next year trades at 99.5% of par:Retiring the bond outright rather than refinancing it still lowers the loan-to-value ratio, but not as much as buying back some of its FR0013431715 1.75% bond maturing in 2049 at 47% of par:In essence, option one above entails retiring the short-dated bond at par, lowering the loan-to-value ratio one to one for each euro spent on debt reduction. In contrast, option two would be to focus on buying back its long-date bond, lowering the loan-to-value ratio two to one (since the current price is below 50% of par) for each euro spent on debt reduction.
Higher AREPS or a lower Loan-to-Value
At the end of the day, given its capital structure of 23.3B EUR proportionate net debt (taking into account actual building ownership percentages rather than the IFRS approach of consolidating properties of above 50% ownership) and a market capitalization of 6.5B EUR, URW will likely have to discuss the exact approach to lowering debt with its creditors.
That said, the company has an interest to take advantage of current market developments and optimize lifetime cashflows to shareholders. Thus, I think favoring a high AREPS approach is the way to go since it will allow the company to maximize the effect of fixed low interest expenses, at the same time utilizing inflation-indexation of rents, before it has to repay creditors at par. Of course, some buyback of long-dated debt to reduce the loan-to-value quickly could play a role as well.