The company behind delayed projects including the £29m Middlewood Plaza in Salford and £49m Cheshire Junction in Warrington has launched a recovery plan including refinancing schemes and rewriting the terms of a seven-year investor loan note.
High Street Group, which is based in Newcastle and headed by chief executive Gary Forrest, has written to investors proposing to delay their annual returns from investments made in the company in return for possible equity in future, Place North West has learned.
Under the terms of an existing High Street financial instrument, investors pump a minimum of £25,000 into the developer’s portfolio of UK private rental sector projects and receive interest of 12% per year over seven years, plus annual bonus payments if the original investment is retained.
The instrument is not project-specific and covers the full spread of High Street’s portfolio of built and pipeline schemes. It is four years into its seven-year timeframe.
The developer, which has had to push back construction timeframes on several projects due to funding issues and the impact of Covid-19, has proposed to investors that they wait a further three years before redeeming their investments and seeking a capital return.
High Street would draw up a “supplementary” loan note that waives the contractual default that would otherwise occur if it failed to repay any amount due to investors in a given year and approve that document at a company meeting on 1 June, according to a communications note sent to investors, seen by Place North West.
The supplementary agreement would effectively allow the company to rescind any requests by investors to exit their investments – known as redemption – on or before that date.
“The slowdown in the economy has had a knock-on effect with regards to HSG’s ability to achieve sales of completed projects within anticipated timescales and slowed down the progress on projects not yet completed,” the communication said.
“The variation of the loan note will allow HSG to have an improved ability to retain and improve liquidity within the company so that [it] can progress projects as quickly as possible in order to achieve a profitable outcome for the company and noteholders.
“In short, HSG wants to protect the noteholders and the company from as many uncertainties as possible and by taking these steps will be in a much stronger position to be able to move projects forward.”
As part of additional measures taken to strengthen its financial position, High Street has also refinanced all of its projects and is working to revise delivery timeframes to get stalled projects back on track, a spokesman for the company told Place North West.
“Our investor proposal is a pragmatic, viable and responsible course of action to support the company’s successful corralling of resources to continue its investment programme,” the spokesman said.
“Investors will receive 100% of their investment plus the agreed interest, but without the ability for early redemption. This measure is not unusual, in fact during the pandemic the FCA [Financial Conduct Authority] gave permission for investment firms to pause redemptions in order to maintain the viability of the sector.
“Our proposal has met with strong levels of support with 50% of investors having already agreed to the new terms. New funding has been agreed for all our projects, which are now remobilising.
“The investor proposal is the final element of our fight-back from the pandemic to take advantage of a newly emerging and buoyant market.”
High Street has faced a string of setbacks in the past year, including a court case involving one of its subsidiaries, High Street Rooftop, and a creditor, which resulted in the subsidiary being placed into administration last September.
Loans initially provided for High Street Rooftop had been deployed to some of the group’s other projects, including the 127-unit Middlewood Plaza, which cast doubts on the health of those schemes. High Street later confirmed that Middlewood Plaza was on track to complete this year.
Last year, the group was forced to appoint a new auditor after ‘Big Four’ accountancy firm PWC resigned citing “insufficiently robust” internal controls at the company. North East practice Haines Watts is now working to file High Street’s 2018 accounts, but the documents remain overdue, according to Companies House.
Meanwhile, completion of the 362-apartment Cheshire Junction has been pushed back several months to early next year amid a dispute with a contractor.