Lendlease Group is using a bank standby loan to pay off about A$1.22 billion of bonds early, a refinancing that has done little to calm investors who expect the debt-laden Australian property group to eventually ask shareholders for fresh money.
The Sydney company told the Australian Securities Exchange on Friday that it had started redeeming five issues and expects to finish by Nov. 30. They are a A$500 million green bond, S$300 million of fixed-rate notes, about A$271 million remaining on a A$300 million green bond, an A$80 million private placement and about 14 million pounds remaining on a sterling green bond.
Bank debt for bonds
The payout will be funded from the A$1.25 billion committed standby facility the company lined up in June. After the redemption, Lendlease expects to hold more than A$2.5 billion of liquidity in cash and undrawn credit lines. The move is not free: the company expects about A$7 million of make-whole payments to bondholders and about A$50 million to unwind related interest-rate hedges, both booked as one-time financing costs in the unit that houses businesses it is exiting.
Lendlease said it would keep looking at ways to improve its mix of funding and would return to debt markets when appropriate. Earlier this year it sold assets, including its Keyton retirement-living business to pension fund Aware Super for A$525 million, and earmarked the proceeds for paying down group debt.
Pressure on the shares
Investors were not reassured. The stock lost almost 9% over the past week, leaving the group with a market value of about A$1.6 billion, and some fund managers have positioned for a rescue equity raise, according to a Sunday report in the Australian Financial Review. The company has not announced any plan to sell shares.
The trade shows a common playbook for stretched borrowers: refinance public bonds with committed bank money to push out pressure, then sell assets to repay the banks. It works as long as asset sales keep pace. Earlier this week Rowan Digital lined up $1.5 billion from lenders for the opposite reason, to build rather than to repair.
