RNS Number:9197O
Aberdeen Preferred Income Trust PLC
19 December 2001
PART 1
ABERDEEN PREFERRED INCOME TRUST PLC (the "Company" or "Abpref")
RECOMMENDED PROPOSALS
PART 1 - HIGHLIGHTS
On 17 October 2001 the Board announced the suspension of monthly dividend
payments on the Ordinary Shares, together with its intention of putting
forward proposals to resolve the issues which gave rise to, inter alia, the
dividend suspension.
The Board's main proposals, which are detailed in Part 2 below, are in
summary:
* to raise up to #72.4 million for the Company by a placing and open offer of a
new class of stepped preference shares. These shares, issued at 100p, will
have a preferential dividend, initially at the rate of 16.75p net p.a. rising
by 5 per cent. p.a. until 2008; and a capital entitlement of 50p rising to
85p in 2008.
* to exchange the zero dividend preference ("ZDP") shares currently issued by
the Company's subsidiary, Aberdeen Preferred Securities PLC ("Abpref
Securities"), for equivalent shares issued by Abpref itself. As an
alternative, holders of existing 2003 ZDP Shares will be able to elect for a
new class of 2005 ZDP Shares, also issued by Abpref.
* prepayment of approximately #30 million of the Company's euro-denominated
bank borrowings (dependent on the precise outcome of the Placing and Open
Offer).
* the authorisation of Abpref to buy back shares of each class of its issued
share capital, including the new stepped preference shares and ZDP shares
* an increase from 8.25 per cent. to 9 per cent. in the coupon of the Company's
subordinated unsecured loan stock ("Loan Stock"), the consent of whose
holders is required for various aspects of the Proposals.
The Proposals are subject to the approval of Stockholders and Shareholders at
meetings to be convened for 14 and 21 January 2002 respectively. Subject to
the Proposals being implemented, and on the basis of assumptions set out in a
prospectus of the Company expected to be published today ("Assumptions"), the
Proposals will or are expected to result in:
* a significant increase in the amount by which the Company's total assets
would need to fall to result in a breach of the asset cover covenant in the
Company's loan agreement with its banks.
* the resumption of dividends on the Ordinary Shares with effect from February
2002, including the suspended monthly dividends from October 2001 to February
2002 inclusive.
* a reduction in the forecast dividends on the Ordinary Shares with immediate
effect from a rate of 19.2p p.a. to a rate of 14.4p p.a. up to April 2002 (so
that, with the exception of the declared but unpaid dividend which should
have been paid in October 2001 and which will be included in the February
2002 payment at the previous monthly rate of 1.6p per share, the suspended
dividends expected to be paid in February will be paid at the new rate of
1.2p per month).
* after April 2002, dividends payments will revert from monthly to quarterly,
payable in August, November, January and April.
* an increase in net asset value and decrease in gearing and Hurdle Rate for
the Ordinary Shares.
* an increase in Cover for the holders of ZDP Shares.
* continued payment of interest on the Loan Stock (which would be suspended if
the Company were unable to pay dividends on the Ordinary Shares), and at a
higher coupon as referred to above.
The announcement by the Board on 17 October 2001 also referred to a possible
corporate transaction, which is now not proceeding.
Enquiries:
Chris Fishwick, Aberdeen Asset Managers 020 7463 6000
David Thomas, Brewin Dolphin Securities 020 7246 1115
PART 2 - RECOMMENDED PROPOSALS
The following are edited extracts from a letter from the Chairman in a
circular (comprising a prospectus) expected to be posted to Shareholders today
(the "Prospectus"). A separate circular is being posted to the holders of the
Loan Stock.
SUMMARY OF THE PROPOSALS
The announcement by the Board on 17 October 2001 indicated that the Directors
intended to put proposals to Shareholders in the light of the circumstances
outlined in the announcement. The Proposals are set out in detail under the
heading "Details of the Proposals" below, but in summary they involve the
following:
* the Placing and Open Offer of a new class of Stepped Preference
Shares which, on the basis of the Assumptions, will raise #62 million
before expenses
* the prepayment of approximately #30 million of the Company's
euro-denominated bank borrowings, dependent on the
actual outcome of the Placing and Open Offer
* the ZDP Share Exchange, under which holders will exchange their
Abpref Securities ZDP Shares for New ZDP Shares issued by Abpref, with
the holders of 2003 ZDP Shares having the alternative
of electing to receive New 2005 ZDP Shares and cash instead of receiving
New 2003 ZDP Shares
* a reduction of share capital and cancellation of share premium
account
* the adoption of the New Articles
* the authorisation of Abpref to buy back Ordinary Shares, Stepped
Preference Shares and New ZDP Shares
* an increase in the coupon of the Loan Stock, the consent of whose
holders is required for various aspects of the Proposals
On the basis of the Assumptions, the Proposals will result in a net increase
in the Company's total assets by approximately #25.8 million from
approximately #240.1 million (net of current period revenue) to approximately
#265.9 million.
The announcement by the Board on 17 October 2001 also referred to a possible
corporate transaction, which is not now proceeding.
BENEFITS OF THE PROPOSALS FOR SHAREHOLDERS AND STOCKHOLDERS
The Directors consider that the Proposals will materially reduce the
likelihood of the Company breaching its banking covenants in the event of
further falls in asset values. The Proposals will also confer the following
benefits on the holders of each class of Shares and the Loan Stock:
Ordinary Shares
* the prospect of resumption of dividend payments
(including the payment of "arrears'' arising from the current
suspension of dividends) albeit at a reduced level, as
described under the heading "Dividends and dividend forecasts"
below
* an increase in net asset value from a shortfall of -23.5p to a
shortfall of -7.1p per share
* a reduction in Hurdle Rate from 9.8 per cent. to 9.0 per
cent. per annum.
* a reduction in capital gearing from 116.5 per cent. to
104.5 per cent.
2003 ZDP Shares
* an increase in Cover from 0.91 times to 1.14 times for
those holders receiving New 2003 ZDP Shares
* the opportunity to elect for New 2005 ZDP Shares and
cash, instead of receiving New 2003 ZDP Shares in
exchange for their shares
2008 ZDP Shares
* an increase in Cover from 0.79 times to 0.94 times
Loan Stock
An improvement in the financial position of Stockholders as regards both
capital and income resulting from:
* the prospect of continued payment, rather than suspension, of
interest
* an increase in coupon from 8.25 to 9 per cent. per annum
* a reduction in the Company's overall gearing
General
The potential benefits described above are based on the Assumptions.
Shareholders should note that the Proposals are inter-conditional, in other
words that the Proposals will not be implemented and none of the potential
benefits will be realised unless the Principal Resolutions are passed at the
respective Meetings and become unconditional. In this connection the attention
of Shareholders is drawn to the consequences detailed in the immediately
following section.
The Directors are aware that there are other split capital investment trusts
that have also had to suspend dividend payments or repay borrowings, or which
have otherwise suffered as a result of asset depletion, and expect that the
next few months will see announcements of mergers and windings-up, or other
reconstructions, involving this sector. The Directors believe that
implementation of the Proposals will strengthen the position of the Company
sufficiently to enable it to participate in such transactions to the benefit
of Shareholders and Stockholders.
CONSEQUENCES OF NON-IMPLEMENTATION OF THE PROPOSALS
Dividend payments on the Ordinary Shares cannot be resumed (and therefore
interest payments on the Loan Stock will also be suspended in accordance with
the Trust Deed) until such time as the Company satisfies the assets tests in
the Act upon which the payment of dividends depends. If the Proposals are not
implemented, the timing of resumption of dividend and interest payments will
remain uncertain for an indefinite period.
Non-implementation of the Proposals would also increase the risk of the
Company breaching its banking covenants in the future, in which event the
Banks would have the right to demand repayment of the Bank Loans. Repayment of
part or all of the Bank Loans would result in:
* the sale of assets in difficult market conditions and at
depressed prices, on a scale which may in itself adversely affect
their realisable value
* a reduction in the assets of the Company arising from
the costs and penalties associated with early repayment of bank
borrowings and termination of interest rate swap agreements
* a reduction in the dividends payable on the Ordinary Shares
* an increase in the Hurdle Rate for the Ordinary Shares
* a potential fall in Cover for the 2003 ZDP Shares and
the 2008 ZDP Shares, compared with the increase which would result
from implementation of the Proposals
* in the most adverse conditions, the premature
liquidation of the Company with the repayment of the ZDP Shares at
less than their current entitlement and little or no likely return to
the holders of 2008 ZDP Shares, Loan Stock or Ordinary Shares.
Also, at present, a proportion of Abpref's gearing, including its 2003 ZDP
Shares and certain of its bank borrowings, are repayable on or before 31 March
2003. Failure to replace this gearing on acceptable terms may affect the
ability of the Company to achieve its investment objectives. Abpref is likely
to be at greater risk of being unable to replace this gearing if the
improvements in cover for the Bank Loans and ZDP Shares are not achieved as a
result of non-implementation of the Proposals.
DETAILS OF THE PROPOSALS
The Placing
Brewin Dolphin Securities has agreed to use its reasonable endeavours to place
conditionally on behalf of Abpref up to 72,357,655 Stepped Preference Shares
at 100p per share, subject if necessary to clawback in favour of Qualifying
Ordinary Shareholders who make valid applications under the Open Offer. As at
the date of this announcement, placing commitments (not all of which are yet
in written form) have been received in respect of 57 million Stepped
Preference Shares. The Placing has not been underwritten and is conditional
on, inter alia, the passing of the Principal Resolutions, Admission (which is
expected to take place on 29 January 2002) and the passing of the Stockholder
Resolution.
The net proceeds of the Placing (after expenses) are expected to be made
available to the Company on the date of Admission. The Manager has indicated
that it intends, subject to the availability of suitable investments, to make
arrangements in anticipation of Admission (but conditional on Admission) to
acquire for the Company securities falling within the Company's investment
policy for in aggregate up to the full amount of the net proceeds of the
Placing from persons who are placees under the Placing. The securities to be
purchased will include Income Shares and fixed interest securities.
The Open Offer
The Open Offer is being made by Brewin Dolphin Securities on behalf of Abpref
and is not underwritten. Under the Open Offer 72,357,655 Stepped Preference
Shares are being offered to Qualifying Ordinary Shareholders.
Qualifying Ordinary Shareholders are entitled to participate in the Open Offer
as follows:
3 Stepped Preference Shares for every 7 existing Ordinary Shares
held at the Open Offer Record Date
and so in proportion for any other number of Ordinary Shares then held.
Qualifying Ordinary Shareholders may apply for any whole number of Stepped
Preference Shares up to or in excess of their pro rata entitlement. Excess
applications will be satisfied to the extent that other Qualifying Ordinary
Shareholders do not take up their entitlements.
Application Forms for the Open Offer are personal to the Shareholder(s) named
thereon and may not be transferred except to satisfy bona fide market claims.
The ZDP Share Exchange
Under the ZDP Share Exchange the existing ZDP Shares, which are issued by
Abpref Securities, will effectively be exchanged for New ZDP Shares, issued by
Abpref.
Holders of 2008 ZDP Shares will receive:
for each 2008 ZDP Share 1 New 2008 ZDP Share
held at the ZDP Share
Exchange Record Date
Holders of 2003 ZDP
Shares will receive:
for each 2003 ZDD Share EITHER 1 New 2003 ZDP Share
held
at the ZDP Share
Exchange Record Date
OR (if they are Qualifying 2003 ZDP Shareholders
and so elect) 2.65 New 2005 ZDP Shares (having
an initial capital entitlement of 265p) and
(ii) 29p in cash
and so in proportion for any other number of 2003 ZDP Shares then held, except
that fractions of New 2005 ZDP Shares will not be allotted.
If elections are made in respect of more than 30 per cent. of the existing
2003 ZDP Shares, the Company reserves the right to scale back elections by up
to the whole amount of the excess for the purpose of balancing the capital
structure of the Company. Scaling back would be on an equitable basis to be
determined by the Directors, but so that elections in respect of up to 30 per
cent. of individual holdings of 2003 ZDP Shares would be satisfied in full.
Consequences of the ZDP Share Exchange
The capital entitlements of the New ZDP Shares will be effectively the same as
or higher than those of the existing ZDP Shares of the relevant class, since:
* the New 2003 ZDP Shares and the New 2008 ZDP Shares will
have the same capital entitlement on a winding-up of Abpref on the
date of Admission as would the 2003 ZDP Shares and the 2008 ZDP Shares
in a winding-up of Abpref Securities on that date;
* the capital entitlement of the New 2003 ZDP Shares and
the New 2008 ZDP Shares on the 2003 ZDP Repayment Date and the 2008
ZDP Repayment Date respectively will be the same as the capital
entitlement of the 2003 ZDP Shares and the 2008 ZDP Shares on those
dates;
* for Qualifying 2003 ZDP Shareholders who elect to
receive New 2005 ZDP Shares and cash, the aggregate of the capital
entitlement of the New 2005 ZDP Shares on the 2005 ZDP Repayment Date
and the 29p in cash they would receive on the Proposals becoming
effective would be greater than the capital entitlement of the 2003
ZDP Shares on the 2003 ZDP Repayment Date; and
* the New 2003 ZDP Shares and the New 2008 ZDP Shares
will, but for the inclusion in Abpref's capital structure of the
Stepped Preference Shares (as regards their prior entitlement to
arrears and accruals of dividend) and the New 2005 ZDP Shares, rank in
the same manner for repayment out of the assets of Abpref in a
winding-up as (taking into account the Loan Notes and the Subscription
Agreements) would the existing 2003 ZDP Shares and 2008 ZDP Shares.
The Stepped Preference Shares, which will be redeemable on 30 November 2008
and annually thereafter, will rank for repayment of capital after the New ZDP
Shares and thus contribute to the Cover of such shares. The New 2005 ZDP
Shares will rank pari passu with the New 2003 ZDP Shares until the latter are
repaid, and ahead of the 2008 ZDP Shares. If on the 2003 Repayment Date there
are (after paying to the holders of the Stepped Preference Shares their
entitlement to accrued dividends) insufficient assets to meet the then current
entitlements of the New 2003 ZDP Shares and the New 2005 ZDP Shares, each
holder of a New 2003 ZDP Share will receive a fraction of his entitlement
equal to the proportion that the available assets bears to the aggregate
current entitlement of the New 2003 ZDP Shares and the New 2005 ZDP Shares.
For a holder of 100 2003 ZDP Shares, the effect (on the basis of the
Assumptions) of electing, or not electing, to receive New 2005 ZDP Shares
under the ZDP Share Exchange is illustrated in the following table:
For a holder For a holder
receiving New 2003 receiving New 2005
ZDP Shares ZDP Shares
Existing
holding
Number of 2003 ZDP Shares 100 - -
held
Number of Shares received n/a 100 265
Cash received n/a - #29.0
Capital entitlement on #289.8 #289.8 #294.0 (i)
Admission
Capital entitlement on the #318.0 #318.0 #331.4(i)
2003 ZDP
Repayment Date
Capital entitlement on the n/a n/a #434.4(i)
2005 ZDP Repayment Date
Redemption Yield to the 93.4% 93.4% 119.7%(iii)
2003 ZDP
Repayment Date (ii)
Redemption Yield to the n/a n/a 40.7%(iv)
2005 ZDP
Repayment Date (ii)
Cover of entitlement on 0.91 1.14 1.14
2003 ZDP
Repayment Date
Cover of entitlement on n/a n/a 1.05
2005 ZDP
Repayment Date
Hurdle Rate 8.8% -10.6% -1.3%
Notes:
i includes the #29.0 cash received in the ZDP Share Exchange.
ii calculated from the Market Price of the existing 2003 ZDP Shares
on 13 December 2001 of 135.25p
iii on the basis of the capital entitlement of the New 2005 ZDP Shares
as at the 2003 ZDP Repayment Date, and assuming that the #29 cash
in relation to the ZDP Share Exchange is received on 29 January
2002.
iv assuming that the #29 cash in relation to the ZDP Share Exchange
is received on 29 January 2002.
The New 2003 ZDP Shares and the New 2008 ZDP Shares will still be repaid on
the 2003 ZDP Repayment Date and the 2008 ZDP Repayment Date respectively. In
the absence of any alternative method of repayment, the proposed New Articles
will safeguard the entitlement of the holders of the New ZDP Shares to be
repaid in a winding-up of Abpref, but only as a last resort. The Directors
intend to ensure that any alternative method will preserve a method of
repaying holders of New 2003 ZDP Shares that will have the same tax effect as
repayment in a winding-up, but this will depend upon circumstances pertaining
at the time. The method currently envisaged by the Directors (and provided for
in the New Articles) for repayment of the New 2003 ZDP Shares and the New 2005
ZDP Shares is a bonus issue and consolidation so that the holders of such
shares will immediately prior to the relevant Repayment Date hold shares
having a nominal value equal to their capital entitlement followed by the
cancellation and repayment of those shares with the consent of the Court.
Further details of the rights attached to the New ZDP Shares are set out under
the heading "Rights and characteristics of the Shares'' below.
Reasons for and benefits of the Exchange
As under the current Group structure the ZDP Shares are issued by Abpref
Securities, this has resulted in a situation where Abpref is now precluded
from paying dividends on its Ordinary Shares and interest on the Loan Stock.
The Directors believe that the Company could only raise new share capital if
it could issue shares, such as the Stepped Preference Shares, on which a
regular dividend would be payable. Following the ZDP Share Exchange, the
liabilities of the Company under the intra-group Loan Notes and Subscription
Agreements to Abpref Securities will be compensated for by an increase in the
value of Abpref's shareholding in Abpref Securities, thus increasing the
Company's net assets by some #126.7 million (being the capital entitlement of
the ZDP Shares at the expected date of Admission). This, taken in conjunction
with the Issue and the Capital Reduction, should ensure that Abpref is able to
continue to pay dividends out of its revenue profits even in continued adverse
investment conditions. Accordingly the Proposals are conditional upon the ZDP
Share Exchange being effected.
If the opportunity for Qualifying 2003 ZDP Shareholders to elect to receive
New 2005 ZDP Shares were not made available, they would all receive New 2003
ZDP Shares and the Company would need to repay some #128 million on the 2003
ZDP Repayment Date. In order to reduce this requirement, the Directors have
determined that such holders be offered the opportunity to switch into the
longer-dated New 2005 ZDP Shares at a price (free of expenses) and on terms
which the Directors believe many such holders will find attractive, on the
basis that:
* the longer-dated New 2005 ZDP Shares will initially be
covered, and will have a capital entitlement which will increase at a
faster rate than the New 2003 ZDP Shares
* in addition to receiving New 2005 ZDP Shares, electing
holders of 2003 ZDP Shares will receive an element of cash, equivalent
to approximately 10 per cent. of their current entitlement and
approximately 21 per cent. of their Market Price on 13 December 2001.
* as at the 2003 ZDP Repayment Date (31 March 2003), the
aggregate of the New 2005 ZDP Share capital entitlement plus the cash
element would be greater than the capital entitlement of an existing
2003 ZDP Share would have been, and the cash will have been received
in January 2002 rather than in March 2003.
Although a proportion of the Company's cash resources would be required to be
spent in order to provide cash to 2003 ZDP holders electing for this option,
the Directors believe that the benefits arising for the Company in what they
consider to be a significant potential strengthening of the Company's balance
sheet justify this course of action.
On the basis of the Assumptions, the Cover of the New 2003 ZDP Shares and New
2008 ZDP Shares will be greater than the Cover of the existing ZDP Shares of
the equivalent class.
Holders of ZDP Shares should note that the Proposals as a whole are
conditional upon the ZDP Share Exchange becoming effective, and if the holders
of the ZDP Shares do not give their approval to the ZDP Share Exchange at the
respective Class Meetings they will not receive the benefit of the increase in
Cover referred to above.
Taxation
For holders of 2003 ZDP Shares receiving New 2003 ZDP Shares and holders of
2008 ZDP Shares receiving New 2008 ZDP Shares their existing ZDP Shares will
be treated for UK capital gains tax purposes as "rolled over" into New ZDP
Shares and consequently will not be liable to an immediate tax charge. Holders
of 2003 ZDP Shares electing to receive New 2005 ZDP Shares and cash may,
subject to their own circumstances, be subject to tax in respect of the cash.
General
Qualifying 2003 ZDP Shareholders who wish to receive New 2005 ZDP Shares and
cash instead of New 2003 ZDP Shares should note that they will have to make an
election to this effect on an Election Form, since in the absence of an
election they will receive New 2003 ZDP Shares. Elections may be made in
respect of all or part of a holding. There is no election form for 2008 ZDP
Shares as their holders will receive only New 2008 ZDP Shares.
If the Proposals are approved by Shareholders and Stockholders, it is expected
that the last day of dealings in the ZDP Shares will be 28 January 2002 and
that dealings in the New ZDP Shares will commence on 29 January 2002.
Certificates for the ZDP Shares will cease to be of value after 28 January
2002 and certificates for New ZDP Shares are expected to be despatched on 29
January 2002.
Subject to implementation of the Proposals, it is expected that Abpref
Securities will be wound up in due course.
If for any reason the New 2005 ZDP Shares are not admitted to listing and to
trading on the London Stock Exchange, but the ZDP Share Exchange otherwise
proceeds, Qualifying 2003 ZDP Shareholders who elect for New 2005 ZDP Shares
and cash will instead receive New 2003 ZDP Shares.
Reduction of reserves and share capital
Abpref is, like many other investment trusts, an investment company within the
meaning of section 266 of the Act. This means that instead of a profit and
loss account it maintains separate revenue and capital accounts (published in
the form of a statement of total return). A company qualifying as an
investment company is prohibited from paying dividends out of capital profits,
but subject to certain conditions may pay a dividend out of its revenue
profits notwithstanding any deficit on capital account.
One of those conditions (in section 265(1)(a) and (b) of the Act) restricts
the payment of a dividend if immediately thereafter the amount of the
Company's assets is not at least equal to one and a half times the aggregate
of its liabilities (each looking at Abpref itself rather than the Group as a
whole).
The Group has in issue two classes of ZDP Shares, due for repayment in 2003
and 2008. While Abpref Securities, the issuer of the ZDP Shares, has no fixed
life, there are provisions under which in certain circumstances it might be
wound up at either of those times. Because Abpref Securities is the issuer of
the ZDP Shares, Abpref itself is undated and Stockholders will be aware that
the Loan Stock is not due to be repaid until 2023. A consequence of this
structure, however, is that for the purposes of the conditions referred to
above the Group's obligations in respect of the ZDP Shares are treated as
liabilities rather than share capital.
As a result of falls in asset values, Abpref's assets no longer meet the
requirements of section 265(1) of the Act. It cannot therefore at present pay
dividends in reliance on its status as an investment company.
Abpref is still able to pay dividends so long as it can comply with the
"normal'' rules relating to distributable profits, which require any deficit
on capital reserves to be taken into account. The Company therefore effected a
reduction of its share premium account in February 2001 to which, at the
direction of Stockholders, the Trustee consented. The effect of this was to
create a "special'' distributable reserve available to be set off against any
deficit from time to time on Abpref's capital reserves, thus enabling
dividends to be paid out of Abpref's revenue reserves.
By virtue of section 264 of the Act, however, the "normal rules'' apply only
if the Company's net assets exceed the aggregate of its called-up share
capital and undistributable reserves. As at 13 December 2001, the Company's
net liabilities (after taking into account its liabilities to Abpref
Securities relating to the existing ZDP Shares) were approximately #29 million
and the aggregate of its called-up share capital and undistributable reserves
were #42.3 million. Accordingly the Company has suspended payment of dividends
on the Ordinary Shares and is not currently in a position to pay interest on
the Loan Stock. The Company is therefore now proposing the reduction of its
issued share capital and the cancellation of its share premium account,
including the capitalisation of the Company's merger reserve and the
cancellation of the resulting share capital. On the basis of the Assumptions,
following implementation of the ZDP Share Exchange and the Placing and Open
Offer, this will give rise to further distributable reserves on the balance
sheet of Abpref amounting to approximately #231 million. These reserves may
not be applied in paying dividends, but can be used, inter alia, to offset any
deficit from time to time in Abpref's capital reserves, thus enabling
dividends to be paid out of revenue reserves, as well as to fund a purchase or
redemption of its own shares.
Once the Proposals have been implemented in full, including the Capital
Reduction having been confirmed by the Court, the Company will meet the
requirements of section 264 of the Act and will therefore be able to resume
the payment of dividends. The Proposals are also designed to enable the
Company in due course to eliminate its liabilities under the Loan Notes which
should enable it also to pay dividends under section 265.
The Capital Reduction will require the approval of the Shareholders and the
sanction of the Court, and the necessary resolutions are to be proposed at the
Abpref EGM. In addition the consent of creditors is required. The consent of
the Banks has been given to the Capital Reduction and the Company has convened
a meeting of the Stockholders, inter alia for the purpose of directing the
Trustee to consent to the Capital Reduction.
Buy back authority
The Company is seeking Shareholder approvals to make market purchases of
Ordinary Shares and/or Stepped Preference Shares and/or New ZDP Shares for a
period expiring at the earlier of 18 months following the date of the Abpref
EGM and the annual general meeting of the Company in 2003 in accordance with
section 166 of the Act and the Directors will seek further Shareholder
approvals upon expiry of such authority as required.
The Company is seeking this authority in light of the recent weakness in the
prices of the Group's issued shares. The Directors believe that, under certain
circumstances, the Company could benefit from repurchasing its shares at a
price at or below net asset value or current entitlement as the case may be,
not only from the point of view of potentially enhancing the capital prospects
for the holders of New ZDP Shares, Stepped Preference Shares and Ordinary
Shares, but also by reducing its requirement to deliver capital or income
returns to such Shareholders in the future. It is envisaged that such share
buy backs would be proportionate, in that they would be conducted with careful
consideration to prospects for returns on all classes of the Company's shares,
as well as to its proximity to its banking covenant limits. In addition, under
the terms of the New Articles, the Company may not exercise its power to
purchase shares without the separate sanction of the holders of the Stepped
Preference Shares and of each class of New ZDP Shares unless the cover (as
defined in the New Articles) of each class after the purchases (taking all
classes purchased together) would not be less than their cover before the
purchase. A similar restriction protecting the Stockholders will be included
in the Trust Deed under the Stockholder Resolution. The consent of the Banks
under the terms of the Bank Loans would also generally be required to any such
purchases.
The Directors believe that buy backs could benefit the Shareholders by
enabling them to realise their investment for cash in weak markets, and by
providing institutional Shareholders with further liquidity. In summary, the
Directors believe that the appropriate use of its prospective authority to buy
back shares could deliver:
* a degree of support for the Company's share prices
* an increase in cover for holders of New ZDP Shares and Loan
Stock
* an increase in net asset value for holders of Ordinary Shares
* a decrease in Hurdle Rate for holders of Stepped Preference Shares and
Ordinary Shares
* an additional tool by which the Company could manage its
requirements to deliver capital and income returns to Shareholders
The buy back authority is being sought on the basis that up to 25,325,179
Ordinary Shares (being 15 per cent. of the issued Ordinary Shares), and in
respect of the other share classes up the maximum number that may be issued
under the Proposals can be acquired on market by the Company under it; that
the price paid for Ordinary Shares and Stepped Preference Shares is between
0.05p per share and a price per share that is not more than 5 per cent. above
the average of the market value of the shares for the 5 business days before
the purchase is made, inclusive; and that the price paid for New ZDP Shares is
between 0.05p per share and the then current entitlement thereof, inclusive.
Any shares purchased by the Company will be cancelled.
The Directors have no specific current intentions regarding utilisation of the
buy back authority.
Increase in coupon of the Loan Stock
The consent of the Stockholders is required for various aspects of the
Proposals. In light of the need for this consent, the Directors have
considered it reasonable and appropriate to offer Stockholders an increase in
the interest rate on the Stock from 8.25 per cent. to 9 per cent. with effect
from 1 March 2002 in return for the passing of the Stockholder Resolution
which provides, inter alia for:
* the terms of the Trust Deed to be amended so that the
Stock will rank as to capital after all classes of share in the
Company other than the Ordinary Shares;
* the breach of the borrowing covenant in the Trust Deed to be
waived; and the sanction of the Stockholders to be given to the
borrowings of the Company exceeding the limit in the Trust Deed
indefinitely;
* amendments to be made to the Trust Deed to facilitate
the repayment of any preference shares of the Company (including the
New ZDP Shares and the Stepped Preference Shares);
* reductions, purchases and redemptions of the Company's
shares to be permitted so long as (in the case of market purchases)
the cover of the Stock (as defined in the Trust Deed) is no worse
thereafter (taking into account any related transactions);
* the Trustee to be directed to consent to the Capital Reduction;
and
* the Trustee to be directed to consent to the payment by
the Company of dividends in certain circumstances where payment would
otherwise be prevented.
In addition the terms of the Trust Deed will be amended to impose
certain limits on the issue of new shares in circumstances where the
cover of the Stock would be reduced in consequence of the proposed
issue, and to remove the provision whereby the payment of
interest on the Loan Stock depends on the availability of
distributable profits.
Partial prepayment of Bank Loans and grant of floating charge
On the basis of the Assumptions approximately #30 million of the Company's
euro-denominated bank borrowings will be repaid following the Placing and Open
Offer.
The Directors have been considering reducing the Company's level of gearing
for some time against a background of difficult market conditions. In August
2001, the RPI-linked debenture stock of approximately #20 million was repaid
in full. The Directors consider a reduction of the Company's bank borrowings
appropriate at this stage, since the issue of New ZDP Shares and Stepped
Preference Shares under the Proposals will have the effect of providing
alternative capital gearing for the Company.
The assumed level of prepayment, together with the implementation of the
Proposals, would also have the effect of restoring a significant margin
between the level of the Company's assets and the requirements of its banking
convenants. On the basis of the Assumptions, the total assets of the Company
could fall by up to 22.9 per cent. before the Company would be in breach of
its minimum asset cover covenant.
Certain amendments, including the grant by the Company of a floating charge
over all its assets, have been agreed with the Banks under the terms of the
Bank Loans, including the grant by the Banks of the consents necessary to
implement the Proposals.
ABPREF FOLLOWING THE PROPOSALS
On the basis of the Assumptions, Abpref's total assets upon implementation of
the Proposals are expected to be approximately #265.9 million, and on the same
basis the capital gearing of the Ordinary Shares (calculated by taking the
aggregate of the Bank Loans, New ZDP Shares, Stepped Preference Shares and
Loan Stock as a percentage of total assets) will be 104.5 per cent. In tabular
form, the effects of the Proposals (on the basis of the Assumptions) will be
as follows:
Pre-Proposals (immediately Post-Proposals
before Admission) (immediately after
Admission)
Sterling bank borrowings #81.0 million #81.0 million
Euro bank borrowings #51.5 million #21.5 million
2003 ZDP Shares #107.6 million -
2008 ZDP Shares #nil -
New 2003 ZDP Shares - #81.8 million
New 2005 ZDP Shares - #32.1 million
New 2008 ZDP Shares - #11.1 million
Stepped Preference Shares (at - #31.0 million
initial entitlement)
Loan Stock #nil #7.4 million
Ordinary Shares (at net asset #nil #nil
value)
____________ ___________
Total assets (net of current #240.1 million #265.9 million
period revenue)
============ ==========
Capital gearing 116.5 per cent. 104.5 per cent.
Note:
The ZDP Shares and the New ZDP Shares are shown at their then current
aggregate entitlement or the assets attributable to that share class,
whichever is the lower
The Company's assets are, and upon implementation of the Proposals will (on
the basis of the Assumptions) be, invested as follows:
Pre-Proposals (immediately Post- Proposals (immediately
before Admission) after Admission)
Income Shares 50% 70%
Bonds and 25% 23%
convertibles
Equities and 9% 7%
preference shares
Cash 16% 0%
_______ ______
100% 100%
======= ======
The portfolio yield from the Income Share Portfolio that the Board has assumed
in making its revised dividend forecasts (as referred to below) is intended to
be relatively conservative, in that it is lower than the headline yields from
the Income Shares held would otherwise suggest. The lowered portfolio yield
requirement reflects the possibility of further dividend cuts in the Income
Share sector, but should also allow for an improvement in the quality of
Abpref's Income Share Portfolio and, if possible, an element of revenue
retention in the future.
DIVIDENDS AND DIVID
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