Warrington-based GP and primary care landlord Assura Group said it plans to raise £35.3m through a two-for-seven rights issue of new shares to boost cash resources and cancel a costly interest rate swap deal with National Australia Bank.
Simon Laffin, chairman, said in a statement to the Stock Exchange on Wednesday: "Unprecedentedly low interest rates have caused the NAB interest rate swap to open up a large mark-to-market loss. The board has taken the decision to cancel this swap and, having received support from our major shareholders, intends to settle it when the proceeds from the rights issue, announced today, are received. This is expected to reduce the group's future annual interest payments by more than £5m compared to the cost had the swap remained in place, and will help to secure future dividend payments."
In early trading on Wednesday morning the share price was down 4p to 34p. Beyond the swap saga, turnover rose 31% to £18.3m in the first six months, helped by the acquisition of AH Medical Properties in February, which added £4m to revenues. Pre-tax profit before losses on the swap and discontinued activities rose 21% from £11.4m to £13.9m in the first half. Assura said its 163 investment properties are valued at £510m.
Laffin added: "Assura is now a pure play primary healthcare property company, focussing on delivering a secure and growing income stream and growth in property value. Over the last 18 months the Company has divested its non-core activities to concentrate on its core property business, which specialises in providing medical centres for GPs.
"This is an attractive market with high-quality, secure investments backed by the NHS on long-term leases. The government is advocating an increasing role for GPs in healthcare provision, which emphasises the need for quality facilities. Assura has developed a deep understanding of this market and how to work with the primary healthcare sector. As a result, we continue to achieve market-leading rent reviews, which, together with our new developments and the AH Medical Properties acquisition, have driven a 58% increase in Group trading profit."
The fully underwritten two-for-seven rights issue will raise £35m gross with the interim dividend suspended but not the final dividend suspended. Terms of a £110m bond placement have been "substantially agreed" to replace the NAB loan.
Further down the interim results statement, Assura explained the interest rate swap deal as follows: "The group has an interest rate swap with National Australia Bank that dates back to 2005, currently for £190m and a tenor of 26 years to 2038. This swap has mutual call options every five years, starting in September 2013, but with a compulsory termination in 2028. This swap was intended to hedge a separate floating rate loan with NAB. The swap fixes this interest rate to 3.29% currently, which rises to 4.59% in January 2012. The loan currently stands at £120m, with the ability for the bank to call the loan in March 2013.
"The company has previously announced that it was planning, on the assumption that NAB would call the loan in on 31 March 2013, to cancel the swap. As a result of significant volatility in long term interest rates, in early October this year, the group purchased a 12 month receiver's 'swaption' to cap the mark-to-market loss on the swap at the then level of £55.0m plus the cost of the 'swaption', which was £13.6m. The effect therefore was to ensure that for 12 months, the net loss on the swap would not exceed £68.6m. The board intends to fix the amount of the loss on the swap with NAB, and then cash settle it upon receipt of proceeds of the Rights Issue, expected to be in mid-December. At the same time as fixing the amount of the loss on the swap, the swaption will be sold. The current market value, as of 22 November 2011, of the swap is a liability of c£62m and the swaption an asset of c£13m."