Spirit Issuer seeks consents for £450 million of two classes of notes

By Susanna Moon

Chicago, July 25 – Spirit Issuer plc said it began a consent solicitation for its £150 million floating-rate class A1 secured debenture bonds due 2028 and £300 million fixed-to-floating class A5 secured debenture bonds due 2034.

The issuer has scheduled a bondholders meeting for Aug. 22 in London.

Bondholders may vote on the proposal before 11 a.m. ET on Aug. 17.

The issuer is asking bondholders to consent to the release of Ambac Assurance UK Ltd. from its rights and obligations under the Ambac financial guarantee for the class A1 debenture bonds and the class A5 debenture bonds, according to a company announcement.

Spirit said it is asking to remove Ambac from being a party to the transaction documents, as well as to consent to the issuer entering into an additional covenants deed with the borrower group security trustee and Spirit to provide rights in favor of Ambac as guarantor, to the holders of the Spirit bonds.

The issuer said that the release, if approved, would be in the interests of bondholders for the following reasons:

• Redundant credit enhancement: It would remove a superfluous layer of credit enhancement that was originally provided to increase the ratings of the bonds, which has since become redundant following the withdrawal of Ambac’s corporate rating; the bonds have the same rating as the other Spirit bonds, which do not have the benefit of the Ambac guarantee, demonstrating that the Ambac guarantee does not have any positive rating impact;

• Direct bondholder consent: It would allow the issuer to seek consent directly from the bondholders for matters that, under the current transaction documents, Ambac is entitled to approve and for which the bondholders are not entitled to vote; there would be no change in any of the existing rights and protections for Spirit bondholders;

• Additional covenant package: the Spirit bondholders would receive the benefit of a package of additional credit-enhancing covenants, currently only enforceable by Ambac for the bonds;

• No further Ambac fees: Following the release of the Ambac guarantee, the issuer would no longer be required to pay any fees or other amounts to Ambac. No fee would be paid to Ambac by the issuer or any member of the securitization group for the release, as this would be paid by Spirit Pub Co. Ltd. This should result in a higher level of cash flows available to issuer secured creditors generally and have no negative impact on the issuer’s cash flows; and

• Enhances refinancing flexibility: It would remove the restriction imposed on the issuer by Ambac, which prevents the issuer from redeeming bonds if the bonds would then constitute less than 25% of all Spirit bonds, restricting refinancing flexibility. Currently, the bonds represent 25.3% of all Spirit bonds.

The additional covenant package that Spirit bondholders would receive is as follows:

• The maximum value of disposals that may be made from the later of the original closing date and the most recent cure date will be 15% of the value of the borrower mortgaged properties at the date of the permitted disposal; and the maximum number of borrower mortgaged properties that may be disposed of from the later of the original closing date and the most recent cure date will be 15% of the number of the borrower mortgaged properties at the date of the permitted disposal.

• Proceeds of permitted disposals will be deposited in the disposal proceeds account and will be exclusively applied toward permitted acquisitions; the purchase of debenture bonds of the issuer/borrower facility agreement of any transaction; and funding capital expenditures that exceeds £45 million in any financial year.

• Outside payments of the issuer/borrower facility agreement for any financial year will be limited to the aggregate of £30 million and 50% of any excess cash over £30 million generated in that financial year.

• No outside payment will be made if the outside payment could not be made if the base threshold for DSCR (OpFlex) on the relevant interest payment date were 1.45.

If the measure is approved, Spirit Pub Co. Ltd. will pay bondholders send electronic voting instruction in favor of the measure by the early instruction deadline an early instruction fee of 0.25% for the class A1 bonds and 1% for the class A5 bonds.

The implementation of each proposal will be contingent on the passing of the measures, the satisfaction of the full release condition and the satisfaction of quorum and majority of votes cast at the meeting.

The early instruction deadline is 11 a.m. ET on Aug. 11 and the solicitation deadline is 11 a.m. ET on Aug. 17. The meetings will be held on Aug. 22 in London.

The early instruction fee will be paid Aug. 25.

The solicitation agent is Deutsche Bank AG, London Branch (+44 0 207 545 8011). The tabulation agent is Lucid Issuer Services Ltd. (+44 (0) 20 7704 0880 or spirit@lucid-is.com).

Spirit is a London-based lender to group companies of Spirit Pub Co. plc.

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