Real estate investment trust Sovran Self Storage Inc. this week completed a financing arrangement totaling $500 million in senior, unsecured debt.
The company will use proceeds from a 10-year, $100 million privately placed term note (the company’s “Series D” notes) and a seven-year, $125 million unsecured term loan provided by a syndicated bank group to repay its $150 million term loan maturing in June 2012 and the $71 million outstanding on its line of credit. The bank lending syndicate has also committed $100 million for a delayed draw note to provide funding for the company’s repayment of mortgage debt maturing in late 2011 and early 2012, as well as borrowings the company expects to incur later this year. The term of the note is seven years and is to be unsecured.
In addition, Sovran negotiated a five-year, $175 million unsecured line of credit, with an accordion feature of an additional $75 million, and an extension provision of up to two additional years.
M&T Bank was the sole lead arranger and book-runner in the transactions; SunTrust Bank served as syndication agent; US Bank, N.A. and Wells Fargo Bank, N.A. each served as co-documentation agents. A total of 10 lenders participated in the syndication.
The $100 million of Series D notes bear interest at 5.54 percent for their 10-year term. Sovran has entered into interest-rate swap contracts that effectively fix the interest rate on the $125 million bank group term note at 4.37 percent, payable over its seven-year term. The $100 million delayed draw note is priced at LIBOR plus 2 percent. The company expects to enter into interest-rate swap contracts that are expected to fix the rate on this note for the next six years.
“This financing package provides us with greater capacity and flexibility, and extends and smoothes our debt maturity dates through 2021,” said David Rogers, chief financial officer. “We’re appreciative of the support that the institutional lenders and our bank group have shown.”
Sovran will incur a one-time charge of approximately $6 million ($0.22 per share) in the third quarter relating to the early termination of interest-rate swap agreements and unamortized costs associated with the repayment of the $150 million term note. Interest expense in 2012 is expected to be reduced by approximately $3.2 million from current year levels as a result of repaying the higher rate existing term loan and mortgage debt.
Interest expense for the balance of 2011 is expected to remain unchanged from guidance previously given. While Sovran will pay a lower rate on the term portion of its debt, it’s replacing $71 million of short-term, lower-cost line-of-credit debt with fixed-rate, albeit higher cost, term debt.
Sovran Self Storage Inc. is a self-administered and self-managed equity REIT that acquires and manages self-storage facilities. The company operates 371 facilities in 24 states.