Assura Properties plc (Assura), a wholly owned subsidiary of Assura Group Limited, which owns a £542m portfolio of primary care properties in the UK, secured £110m of funding at the close of last year, not through the traditional route of bank lending but via a 10-year bond issue. Both the size of the issue and the attractive coupon will be of particular interest to mid-size businesses currently struggling to secure long-term bank finance at an affordable rate.

At the relatively modest level of £110m the issue was some way below the usual benchmark of £500m for a bond issue, a figure that is often in excess of the capital requirements of mid-size companies. In addition to constituting a manageable level of debt for a company of this size, the issue was priced at the rate of 4.75% interest and loan-to-value covenants were set at 75%, both of which compare favourably with current bank market alternatives.

Entering the capital markets to raise finance inevitably raises its own set of challenges for the company and Assura was no exception. Assura was required to perform an intra-group re-organisation to ringfence the assets securing the issue and to reduce its share capital to ensure its balance sheet met the requisite tests for conversion from a private to a public company. The share capital reduction was carried out under the Section 642 Companies Act 2006 procedure (which does not require court approval for the reduction). The asset transfers were performed at ‘market value’ with the outstanding consideration subsequently being capitalised.

As the bond was to be listed on the Professional Securities Market of the London Stock Exchange, listing particulars rather than a full prospectus were required to be produced.

The security for the issue comprised a fixed and floating charge over sixty different properties owned by four separate entities within the Assura group. Each property required a full review and certificate of title for the benefit of the Prudential Trustee Company Limited, the security trustee. One of the properties was situated in Scotland, requiring input from Scottish property and corporate specialists. The interests of bondholders were protected by a trust deed entered into with the security trustee.

The funding was being used to refinance Assura’s indebtedness to National Australia Bank, so the bond needed to be issued at the same time as the indebtedness was agreed to be repaid. The bond issue was also concluded simultaneously with a £35m rights issue by Assura Group Limited, the Guernsey registered and LSE-listed parent company of the Assura group, which was used to fund the balance of the indebtedness.

As a result of the bond issue, Assura has refinanced its traditional bank debt in its entirety in favour of long-term institutional investment. Assura’s route to re-financing may have demonstrated a new and cost-effective way of funding mid-range businesses. Bond issues can provide access to capital through the public markets at rates more attractive than those provided by banks, and are clearly not the sole preserve of major corporates.

On a personal note, for us as a mid-sized firm this was a very sizeable deal and we are particularly pleased to be associated with what may prove to be a new capital market for smaller enterprises.

Melvin Pedro, is a partner at Manches, which worked with Assura on the deal