Tiered covenants help Land Securities debt exchange

Liability management through debt exchanges and buybacks has been one of the big themes of 2004. Last month saw UK commercial property firm Land Securities announce a novel refinancing that makes its debt both cheaper and less of an encumbrance on its day-to-day business.

Historically, Land Securities has followed an unsecured funding strategy and aimed for a single A credit rating. But as last year progressed, a number of Land Securities' unsecured bonds and debentures had high coupons. Although their face value was approximately £1.8 billion, their market value was close to £2.4 billion.

Debentures can be especially annoying for property companies, which need operational flexibility to buy and sell property assets quickly. If those assets are mortgaged to debentures, Land Securities has to ask the debenture trustee to release the...