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US private capital group Apollo will lend Canary Wharf £610mn to pay off its bonds, in a deal that allows the London landlord to complete its refinancing race but will lock it into higher interest costs.
The US group will provide a five-year loan in two tranches to refinance two of Canary Wharf Group’s bonds when they fall due in 2025 and 2026, secured against the east London financial centre’s underground shopping centres.
The deal is the last of a series of high-stakes transactions CWG has pursued this year to refinance loans ahead of deadlines. It leaves the company with no major debts due before 2028. CWG, which is co-owned by Brookfield and the Qatar Investment Authority, has secured £2bn of financing in the past year.
Becky Worthington, CWG’s chief financial officer, said: “This was the year of financing and of making sure the balance sheet was in a strong position. We have created the space and time for the business. Every single thing we had said we would do this year on financing, we have done.”
The new loans also mean accepting much higher interest rates, which will put further pressure on the landlord’s finances.
Similar to other big commercial landlords, CWG has not felt the full effect of rising interest rates over recent years because the majority of its debt has fixed or capped interest rates. Its weighted average cost of debt has risen from 4.5 per cent in 2019 to 5.4 per cent at the end of June.
However, it has had to pay off several hundred million pounds of loans in order to secure more debt because of falls in the value of its assets.
The two bonds that CWG is paying down were issued in 2021 and have interest rates of 2.6 per cent and 1.75 per cent respectively. A third bond is due in 2028.
CWG and Apollo declined to disclose the pricing of the new debt.
Such loans would typically be priced several percentage points above the Bank of England’s Sonia benchmark Sterling borrowing rate, which is currently about 4.7 per cent.
Rating agencies Fitch and Moody’s have both noted the high proportion of earnings CWG is already spending on interest payments. “Rising funding costs . . . will strain the company’s already low interest cover,” Moody’s analyst Ramzi Kattan said last week.
The ratio of CWG’s earnings before interest and tax (ebit) to its interest costs declined to 0.9 as of June, according to Moody’s. Meanwhile, its underlying net financing costs increased 18 per cent to £234mn last year from the year before, while its profit before tax fell 31 per cent to £27.6mn.
Worthington said the financial picture should improve as interest rates fall, and the company was working to increase its income by signing new leases and could sell some buildings as the market recovers from a record low this year. “2025 is going to be the year of really driving leasing activity,” she said.
CWG had discussed taking the new loan from a group of banks, but chose Apollo, in part because the firm was able to move quickly and cover the entire value of the loan. “Being able to deliver a transaction in good time . . . was very important,” Worthington said.
Bondholders signed off on the deal last week after Brookfield committed £900mn to pay off all CWG’s bonds if required. The new loans come from an Apollo strategy focused on blue-chip real estate.
Ben Eppley, Apollo’s head of European real estate credit, said CWG’s retail portfolio was “unique when you look at its attributes and the benefits of being part of a prime mixed-use development — with retail, food and beverage, residential, office and experiential real estate. Canary Wharf’s retail has extremely high footfall and a resilient operating history.”
CWG’s retail space was 96 per cent occupied and valued at £1.2bn as of June, generating roughly £34mn of rent in the first half of the year. The estate had a record 67mn visitors last year.
