U.K. Motorway Service Co. Refinancing Will Leave Bondholders In The Lurch

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  • 16 Jun 2003
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Welcome Break, a U.K. motorway services company, is attempting to refinance its whole business securitization, which may result in its bondholders taking a significant hit. Welcome Break has proposed a £250 million sale and lease back deal of nine of its motorway service properties to redeem all of Welcome Break Finance's junior notes and most of its senior notes, according to officials who have seen the term sheet. The refinancing is designed to raise cash by selling property to redeem the notes, hoping to reduce interest expense.

Calls to Ian Harris, cfo at Welcome Break, were referred to Houlihan, Lokey, Howard & Zukin, a firm appointed by the company to arrange the refinancing. Repeated calls to Joseph Swanson, the banker who is responsible for the Welcome Break refinancing at Houlihan Lokey, were not returned.

For the refinancing to happen, Welcome Break needs to get the go-ahead from 75% of each class of note-holders. Welcome Break is offering class A note-holders 84 pence on the pound and class B note-holders 37 pence. A current price for these bonds could not be found as they are not actively traded, but the class A notes are said to be trading in the mid-70s, according to one investor.

Another investor in the deal says that as a senior note holder who bought the deal at par he is negative on the offer proposed by Welcome Break. "We're not very happy to take a 16% loss on the deal," he says. However, he notes that it is still too early to make a decision on how to proceed, because his firm needs to talk to the issuer, Houlihan, Lokey and other investors. "There are 101 things we need to look at, but I can't imagine that anyone who bought this deal at par is anything but negative on the offer," he says.

Welcome Break Finance is considered to be the U.K.'s first whole business securitization and uses the motorway service area revenues to pay the note-holders. Unfortunately, revenues have not met expectations and the deal has suffered. The original £376 million deal was priced in 1997 and has been downgraded several times since. In February, Fitch Ratings downgraded the class A notes to triple-B minus from triple-B and the class B notes to B plus from double-B minus.

  • 16 Jun 2003

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