Landsec – or Land Securities Group Plc – is the largest commercial property development and investment company in the UK. It is a Real Estate Investment Trust and a FTSE 100 constituent. It was founded in 1944, when Harold Samuel purchased Land Securities Investment Trust Limited, which owned three houses in Kensington and some government stock.
The IBOR transition project took place at a time of considerable change. I was a virtual recruit, taken on during COVID-19 lockdown in April 2021, but by the time I left in November 2021, there had been a phased return to the workplace. There had been recent change at the top, with a relatively new CEO in place and a new CFO joining the business.
Landsec wanted to continue the execution of its five-year strategy, which is to reshape its portfolio by divesting assets of around £4bn from sub-scale sectors and reinvesting in sectors that work for Landsec – and not necessarily in that order. For that to succeed, it required its debt to be fully functional. Unfortunately, all of the debt was exposed to LIBOR (both GBP and USD).
The main strands to the project were as follows:
• Revolving credit facilities of approximately £2.7bn, mostly syndicated, with GBP and USD LIBOR exposure:
o Transitioned in August to SONIA and SOFR plus CAS, went live 1 September;
• Bonds of approximately £2.4bn, across 11 series, fixed rate, but with exposures to GBP LIBOR, within the make-whole clause and some within the ‘step-up’ clause:
o Transitioned on 24 November to SONIA plus CAS, with all 11 series voting strongly in favour at the first time of asking, with very high attendance rates;
• Systems and accounting:
o FIS – transitioned by 1 September for drawdowns and mid-November for reporting;
o Excel – transitioned by mid-November for reporting – for example, benchmarking CP issuance;
• Derivatives.
In the end, the project took seven months, not four. The main reason for this was that bonds are a big risk, as they require investors to vote on the changes, whereas credit facilities can be negotiated directly with lenders. Considerable preparatory efforts went into the project, especially the bonds, to minimise the risk of a ‘no’ vote. This included taking the decision to convene a special meeting at the Investment Association (IA) of Landsec’s top bond investors.
At that meeting the proposals were presented and – thankfully – approved; although it gave the chance for any objections to be raised and dealt with through the Special Committee, rather than publicly, which would have been the case if such an objection was expressed through a ‘no’ vote. So, with the IA committee approval in hand, the ‘team’ (consent solicitation material creators (including lawyers) and institutional and retail agents) were able to confidently present the proposals to the investors.
The decision to go to the IA increased the original estimated length of the project. However, in my view, it also helped significantly to getting the proposals through at the first vote, which capped any further costs – for example, the cost of adjourned meetings, or – god forbid – the cost of going to tough legacy.
This was a significant piece of work, representing two fairly significant chunks of the sterling LIBOR credit facility and bond market exposures.
Looking back, there were some serious headaches, but in terms of the LIBOR transition project, the key issue was the uncertainty created by the requirement for changes to the bond interest rate provisions to be approved by a vote, rather than private negotiation.
My advice to anyone setting out on a similar project is simple: there can be no substitute for getting the right people in place. Fortunately, we had some excellent people involved in this project who all contributed to its success.
James Leather provides interim and advisory services in the name of Corium Treasury Ltd. Contact him at james.leather@coriumtreasury.com
Christian Doherty at The Treasurer, Sarah Boyce at the Association of Corporate Treasurers and James Gillard and the entire team at Landsec
