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Floating Charges and Companies Limited by Guarantee

A recent newsletter issued by another firm operating in the housing sector questioned the structure of a successful £102m bond issue by Cross Keys Homes and asked “where were the advisors?” Centrus was one of the advisors on this deal which was the culmination of a complex and successful restructuring and refinancing exercise.

The newsletter states that Cross Keys Homes “conceded a first floating charge” and infers this was to derive a pricing benefit. Ordinarily these comments would at best appear to demonstrate a lack of understanding. However, this is somewhat puzzling when the firm making the comments should be more than familiar with the structure having lead managed recent transactions for Companies Limited by Guarantee where bondholders were also (quite correctly) given the benefit of an existing floating charge. We won’t bore readers with the history, relevance and applicability of floating charges in respect of a Company Limited by Guarantee (unless you are interested, in which case read the footnote*!).

In relation to the rather excitable suggestion that “this creates a serious hostage to fortune as it constraints (sic) subsequent lending”, the issuer in question has just raised £102m in the public bond market with a floating charge already in place on existing loan facilities to three now bilateral lenders. Readers of this response will no doubt draw their own conclusions!!

*Lenders into CLGs have generally required floating charges on the basis that the holder of a floating charge over a company can block the appointment of an administrator (lenders don’t like administrators, as they act for all creditors, not just them and would prefer to appoint an administrative receiver or LPA receiver). Clearly, once existing lenders have a floating charge – as they already did in this case – new lenders will ordinarily require the same position in order to rank on a fully pari passu basis. In the case of Cross Keys Homes the borrower has the right to allow new lenders to accede to its security trust without seeking bondholder consent.