Brookfield commits £900mn to backstop Canary Wharf refinancing

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Brookfield has agreed to provide a £900mn backstop for Canary Wharf’s debts, as the docklands landlord seeks bondholders’ approval for its plans to refinance upcoming maturities with new loans secured against its retail portfolio. 

Canary Wharf Group (CWG), which owns and manages a large part of the east London financial district, has asked bondholders for approval to allow it to raise new debt secured against its retail portfolio, according to a statement on Friday. 

Brookfield, the Canadian asset manager that co-owns CWG with the Qatar Investment Authority (QIA), has signed a letter committing it to provide £900mn in new equity to pay off the bonds if needed, in effect backstopping their refinancing. 

QIA could also sign up to the commitment at a later date, in which case the investors will provide up to £450mn each. 

“We view the company’s plans as materially credit positive because of the significantly reduced refinancing risk and the new shareholder commitment, available for repaying the notes if necessary,” Moody’s rating agency said in a note. 

The docklands landlord is working to extend and refinance its complex debt arrangements as it tries to boost the appeal of the estate after the departure of big tenants including HSBC and Clifford Chance. 

Property values have fallen sharply over the past two years, hit by higher interest rates and fears about office demand given hybrid working. CWG’s loan-to-value ratio rose above its 50 per cent target to 55 per cent at the end of June — up from 52 per cent at the end of last year. 

CWG is looking to raise debt from banks against its vast underground shopping centres to repay two of its three bonds when they fall due in 2025 and 2026. Moody’s said it expected the new debt to be up to £610mn. 

A third bond maturity of £300mn, due in 2028, would remain outstanding and would be refinanced “in due course,” CWG said. The new debt will probably be considerably more expensive than the bonds, which have interest rates of between 1.7 and 3.4 per cent.

The group has already pulled off several large refinancings, paying down and extending loans secured against several buildings. Raising new debt on the shopping complex and paying off the first two bonds of £350mn and €300mn would leave it with no debt deadlines until 2028. 

CWG still faces a difficult office market as it tries to increase its appeal with more green space, restaurants and other attractions. 

“In our view, the company continues to depend on asset disposals in weak but improving investment markets to reduce leverage below its financial policy of maintaining a loan-to-value ratio below 50 per cent and to strengthen its low interest cover,” Moody’s said.