Canary Wharf Seeks Waivers To Covenant Tests On Retail And Construction Loans
Sir George Iacobescu and Shobi Khan, the chairman and chief executive of Canary Wharf Group, respectively, have been in the media recently banging the drum urging a return to the office. As the owners of one of London’s largest office estates, you might think they are trying to protect the value of their workspace. It may be more about the shops than the offices.
Canary Wharf has agreed a deal with lenders on £700M of debt secured against its shopping mall assets to waive loan-to-value covenant tests until November and interest cover covenants until January to avoid any potential breach, annual results for the company show.
Annual results for 2019, which were released at the end of July and outline the impact of COVID-19 after the period the results cover, show Canary Wharf collected 99% of its office rents in March and June this year, but just 30% of its retail rents. That was enough to ensure the interest on the £700M loan was paid, but interest cover covenants usually stipulate the income from a property has to be a lot higher than the interest payment, to ensure a cushion. Lloyds Banking Group is one of the syndicate of banks that provided the loan.
Under current covenants, the maximum LTV of the loan is 70%, and in December the LTV was 65%. The minimum interest cover is 175%, and the company said it was compliant through 2019, and has the ability to remedy a breach by depositing cash. The loan matures in November 2021.
Canary Wharf, which is owned by Brookfield and the Qatar Investment Authority, said it would ask for another waiver again in January if necessary, as it is uncertain how quickly retail footfall will improve now that lockdown has been lifted. And if office workers don’t come back, the shops, bars and restaurants in Canary Wharf will continue to struggle.
Canary Wharf has asked its staff to come back into the office unless they have particular childcare issues, according to The Telegraph.
Canary Wharf said its retail portfolio dropped in value by 10% to £1.1B in 2019, before the onset of the coronavirus, because of a fall in the value of retail assets in the market more generally.
The company also said it had approached lenders on its construction loan facilities to ask for extensions and waivers of “key covenants,” without specifying on which loans extensions had been sought. It said that given Bank of England guidance on banks helping out borrowers, it expected to be granted the waivers. The accounts show the company has £764M of construction loans secured against office schemes, rented residential and residential for sale, of which £379M was undrawn at the end of last year.
In 2019, Canary Wharf’s office assets, which make up 84% of its portfolio, fared well. They increased in value by 1% in 2019 to £5.8B. Overall the value of the company’s portfolio including developments increased by 2% to £8.6B. The company has £3.8B of debt.