(Bloomberg) -- Swedish landlord SBB took a major step toward stabilizing its finances after 95% of its bondholders agreed to swap their existing securities into new notes totaling €2.8 billion ($2.94 billion).
The exchange offer was hailed a success by Chief Executive Officer Leiv Synnes. “We had faith in the majority of our bondholders,” he said in an interview following the announcement.
SBB Class B shares subsequently rose 19% in early morning trading, the most in seven months.
Samhallsbyggnadsbolaget i Norden AB — as the group is formally known — offered bondholders the opportunity to swap, in part to put creditors closer to their assets after they overhauled their property holdings. As part of SBB’s efforts to boost cash, they’ve been separating their different portfolios in order to bring in new investment.
However the new securities also amended the covenant relating to the company’s consolidated coverage ratio, a gauge of its ability to service its debt. That issue has been the focus of litigation from US hedge fund Fir Tree Partners, meaning the exchange further isolates the fund from the rest of the company’s major bondholders.
The new bond documents switch from a so-called maintenance covenant to an incurrence one. That means it will only come into force if the company undertakes certain actions, such as issuing new debt.
Last week’s offer of new notes by SBB prompted pushback from some analysts. Mary Pollock at CreditSights argued that creditors should “organize and push” for the covenant to remain a maintenance one, and demand tighter restrictions around the use of proceeds from asset sales, according to a note last week.
For Synnes, the move to an incurrence covenant is in line with the practice adopted by most real estate investment trusts in the US.
“It enables a company to overcome short-term difficulties and not be in the hands of aggressive bondholders,” the CEO said.
Court Challenge
Fir Tree will challenge SBB in court next month over an alleged breach of the consolidated coverage covenant last year, with a number of other funds also declaring their intention to demand repayment on their debt over the issue. SBB has denied the claims.
“We do not intend to engage with Fir Tree,” Synnes said. “We were in London recently preparing for the court case.”
SBB also bought back some bonds as part of the debt plan. Of the seven issues up for tender, only portions of two series of notes were bought back, totaling €107 million and 40 million kronor, respectively.
“We chose to only tender a small portion of the short-term notes based on the economics,” Synnes said.
(Updates with CEO comment throughout.)
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