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Primary Health Properties completes £378m refinancing with four lenders

Primary Health Properties (PHP) has completed three separate refinancings with three UK clearing banks and one insurance lender together amounting to £378m, capitalising on tightening senior credit spreads and implementing a migration towards unsecured credit to reduce the healthcare REIT’s cost of debt.

PHP, whose healthcare property portfolio surpassed £1bn at the end of June, achieved an average margin reduction of 55 basis points for its secured banking facilities, comprised of a joint Royal Bank of Scotland and Santander facility and a separate Barclays Bank credit agreement.

In addition, PHP has restructured and refinanced its legacy Aviva Commercial Finance loans which were inherited as part of the REIT’s £233m acquisition of Prime Public Partnerships’ (PPP) 54 UK-wide specialist medical assets on 2 December 2013.

The first of the three refinancings is the second extension of a Barclays Bank revolving credit facility (RCF) by £30m to £100m. The new five-year loan has also been restructured into two tranches: a £40m term loan and a £60m RCF, maturing in August 2019.

The initial margin has fallen by approximately 45bps – from around 220bps to circa 185bps over LIBOR in the 18 months to this August. PHP’s Barclays facility is currently £29.1m drawn, providing £70.9m headroom.

PHP’s Barclays facility was originally structured as a £50m RCF in March 2013 and refinanced £49.8m of inherited Aviva loans, which secured its acquisition of the 14-strong Apollo Medical Partners portfolio acquired in December 2012, then valued at £62.3m.

In the subsequent months, before PHP’s August 2013 interim results, Barclays extended to RCF to £70m, which was re-extended and restructured on Tuesday to the current £100m dual facility.

The second refinancing is the 18-month extension of the 50:50 split £165m part-term, part-RCF with RBS and Santander out to August 2017.

The dual tranche facility was originally for £175m in April 2012, split £125m term and £50m RCF before PHP reduced combined capacity to £140m in November 2013 with part of the net proceeds from its a £70m, 12-year secured bond. The secured bond was priced on a floating rate basis paying 220bps over six-month LIBOR.

At the end of last year, PHP re-instated £25m of the RBS and Santander facility for headroom purposes.

The dual facility is now comprised of a £115m term loan and £50m RCF, with a blended initial margin reduction of around 65bps to between 190 to 200 bps over LIBOR.

PHP’s diversification into unsecured lending – including becoming the first UK REIT to issue a retail bond in July 2012 with the £75m, seven-year bond and the £82.5m convertible bond issued this May – has enabled the REIT to reduce its drawdown across its term facilities.

This has enhanced its ability to command lower margins on its secured facilities.

Finally, PHP has completed the third and final phase of the refinancing of the £178.4m Aviva loans which the healthcare specialist REIT inherited as part of its £233m acquisition of Prime Public Partnerships’ (PPP) 54 UK-wide specialist medical assets.

The first phase, completed immediately following the 2 December 2013 acquisition, was the re-pricing of the Aviva legacy loans at current market levels at a cost of £13.7m, together with a £15m capital repayment.

Then in April this year, PHP a further £50m of the outstanding Aviva PPP facility was refinanced with a five-year £50m HSBC RCF, with an initial margin of 200 bps over LIBOR maturing in April 2019.

Yesterday, PHP concluded the refinancing of the remaining unpaid legacy Aviva PPP facilities, with £112.8m in re-priced and extended Aviva Commercial Finance loans over two separate tranches.

The tranches comprise a £50m, 10-year interest-only tranche maturing in August 2024 and a £63m, 15-year tranche with an initial 5-year interest-only period and partial amortisation and maturing in August 2029. Both tranches are below the previous all-in cost of 5% with Aviva.

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