On 22 March 2021, Centuria Capital No. 2 Fund (“the Issuer”, under terms and conditions set out in the Prospectus) launched an offer for Secured Redeemable Notes (ASX: C2FHA) to raise $100 million, with the ability to raise more or less. The margin above 3mBBSW is guided to be between 4.25 - 4.50%. Proceeds are being used to redeem the 2021 Wholesale Notes and to support the Group’s co-investment programme and acquisition activities. The Offer comprises a Broker Firm Offer, a Securityholder Offer (eligible CNI holders) and an Institutional Offer. The Notes are intended to be listed on the ASX.
These securities are structured as direct, senior secured obligations of the Issuer, which itself holds equity stakes in two listed property funds and a number of other unlisted property funds. Investors also benefit from a guarantee providing access to Group (Centuria Capital Group, ASX: CNI) cash flows (which are outside of those within the security pool) for debt servicing. Distributions are non-discretionary and paid quarterly in arrears with the first Interest Payment Date being 20 July 2021.
Investors are protected by Event of Default mechanisms (including cross-default) and a negative pledge. Secured debt cannot exceed 65% of total tangible assets. The Guarantor (CNI) is subject to a minimum interest coverage ratio (ICR) of 2.00x, when CNI wishes to incur new debt. The holder may request early redemption of the Notes on the occurrence of an Event of Default. On a Change of Control Event, the Issuer must redeem Notes at 105% of Face Value of the Notes.
The Issuer may redeem all or some of the Notes on 20 October 2024 at $101, 20 April 2025 at $100 and 20 October 2025 at $100. Final legal maturity is 20 April 2026.
Our relative value analysis is split across four levels – all of which indicate a robust premium on offer. (1) C2FHA sits at a 2.9x multiple over our BBB band REIT curve – comparatively, in March 2020, the 2024 Exchange Offer presented a 2.4x multiple. (2) C2FHA provides a 150bps premium against Big Four listed AT1 alternatives. This is a substantive difference for a security credit rating delta which we view as being only one notch lower. (3) C2FHA sits 190bps below our Sub-IG/NR curve, however in March 2020, the 2024 Exchange Offer was 200bps rich of the curve. (4) On a cross-currency swap basis, C2FHA prices above the USD single B credit rating curve – this is indicative of exceptional value, given we view the credit profile as being significantly better. We recommend investors Subscribe.
