By Iain Withers
LONDON (Reuters) -London's Canary Wharf district will borrow 610 million pounds ($777 million) from U.S. investment giant Apollo to repay bonds due over the next two years, raising its funding costs but removing near-term refinancing risks.
Landlord Canary Wharf Group (CWG) has faced challenging trading since the COVID-19 pandemic, as changing working patterns have driven out key office tenants from the east London business district including HSBC.
The loan was secured with clients and funds managed by Apollo Global against the majority of CWG's 1.2 million square feet retail portfolio, CWG said in its announcement of the deal on Tuesday. Proceeds will repay bonds due in April 2025 and 2026.
The Apollo loan, for which terms were not disclosed, will mean higher rates for the district because it repays bonds taken out when rates were much lower. However, it leaves CWG with no major refinancing due until 2028.
The refinancing showed strong support from lenders for the district, CWG said.
The bonds that will be repaid have rates of 2.625% and 1.75% respectively, well below current industry finance costs.
Property companies have been squeezed globally by having to refinance debts agreed before the pandemic at today's higher financing costs.
The Apollo deal nonetheless eases some pressure on CWG. One of its key backers, Brookfield, had agreed a 900 million pound financing backstop with CWG last month in case it needed help to repay 2025, 2026 and 2028 bonds.
"We have achieved a significant amount of financing over the last 12 months and this latest deal with Apollo is testament to the strength of the proposition and our performance at Canary Wharf," Becky Worthington, chief financial officer at CWG, said in a statement.
Property values in the Canary Wharf financial district fell by 1.2 billion pounds in 2023, led by a decline in the value of its office buildings, the landlord said in April's annual results.
Reuters has reported that CWG is considering converting empty office space into other uses including hotels. One of its biggest occupiers - JPMorgan - is weighing options for its European headquarters in London, possibly including a new tower block.
Apollo is among the largest providers globally of private credit from non-bank lenders that have boomed in the past decade as they step into shoes vacated by banks, often lending to riskier borrowers.
($1 = 0.7850 pounds)