NEW FINANCING STRUCTURE | Shepherd Neame

Private placement issued and facilities extended to take advantage of long term growth prospects.

Shepherd Neame, Britain’s oldest brewer and owner and operator of 321 pubs in Kent and the south east, today announces a new and extended financing structure to support the business for the long term and to take advantage of any opportunities that may arise over the next few years.

The new structure gives the Company £107.5m of committed long term facilities and is attractive because it provides:
•   Certainty of funding as the business looks for growth. Major infrastructure and housing development is forecast to take place in the company’s heartland between now and 2030 and Kent’s population is anticipated to grow by 20% in that time. The company has recently agreed to build a new pub hotel in Castle Hill in the Ebbsfleet Garden City development zone and anticipates further opportunities will arise in the medium term.
•   A lower rate of interest than the debt being replaced
•   An improved debt maturity profile with a revolving credit facility expiring in 2023, and private placement expiring in 2038
•   New debt partners who share and support our long-term focus and strategy
Specifically, the key features of this new financing structure are:
•   A private placement raising £35m. BAE Systems Pension Funds Investment Management Ltd (“BAE Pension Fund”), who support many long term strategic businesses, will receive loan notes at a fixed interest rate of 3.99% for 20 years.
•   These loan notes replace part of the current term loan that is due to expire in 2026. As a result, £37.5m of this loan has been cancelled and repaid. Swap contracts of £35m associated with this loan have been terminated at a cash cost of approximately £9.4m (£7.6m net of tax). The cancellation of the swaps will have no impact on net asset value per share, but will increase net debt in the short term and lead to an exceptional charge in the current financial year. For the 53 weeks ended 30 June 2018 net debt stood at £74.8m and the leverage ratio of net debt to underlying EBITDA¹ was 3.0 times at the balance sheet date.
•   A new five-year revolving credit facility of £50m with Lloyds Bank plc and Santander UK plc. This matures in 2023 replacing the existing facility of £45m that was due to expire in 2020. The terms of this facility are LIBOR² plus bank margin of between 1.35% and 2.50% depending on the leverage ratio of net debt to EBITDA. The rate of LIBOR on the first £20m of the drawings on this facility has been capped at 2.0%.
In conjunction with this refinancing, an off-balance sheet Directors’ valuation³ of our licensed property assets has been undertaken showing a surplus over current book value of £24m. In future, the Board intends to carry out further off balance sheet Directors’ valuations of our licensed estate every four years and will report these updates to shareholders at that time.
Shepherd Neame was advised on its debt refinancing by Rothschild & Co.

¹ Profit before tax pre items excluded from underlying results, net finance costs, depreciation, amortisation, profit or loss on sale of fixed assets excluding property and free trade loan discounts.
² London Interbank Offered Rate
³ The valuation covers licensed properties only and was carried out by the company’s professionally qualified staff on a RICS Red Book basis. A sample of 10% of the property values were independently verified by Savills.