Fizzy returns to US investor to secure debt at under 2.5%

PGIM’s senior debt will be drawn in two tranches: £9.8m in May 2017 for the first block, and £11.3m in May 2018 for the second block.

The first block handed over in the week following the Brexit vote in June 2016, and reached 95 per cent occupancy within four months. The second Lewisham block is due to hand over in September 2017 and is expected to be 95 per cent occupied by March 2018.

Fizzy’s original facility with Pricoa was a 10-year, £32.4m debt package at a rate of under 3 per cent, and marked the investor’s entry in the UK private rented sector.

The overall rate for the £53.5m - which is all in sterling - therefore remains below 3 per cent, but matures in 2025.

The Fizzy business - which launched in 2012 - is now a joint venture with the Abu Dhabi Investment Authority (ADIA) after it purchased a majority stake in the company in 2015 with a £200m equity investment, which it then doubled to £400m.

Rita Akushie, TVH group finance director, said: ‘Attracting keenly priced third party senior debt is a key element to increasing investment returns.

Ms Akushie said that from a PGIM perspective, the Fizzy portfolio is attractive as the assets are proven to generate cash sufficient to cover interest payments, and the loan to value is low; the Fizzy portfolio value has increased 36 per cent since ADIA invested.

From a Fizzy perspective, she said the low financing cost increases investor returns and the covenant headroom provides comfort that the PRS provider ‘can withstand market fluctuations without risking a breach of those covenants’.

She added: ‘It is great that PGIM has demonstrated their confidence in Fizzy’s business model for a second time. The extension of the loan facility to our new assets underlines their confidence in our ability to deliver excellent operational efficiency.’

The original funding structure with Pricoa - part of the global investment management business of Prudential Financial - saw security packaged up based on each scheme, but with ‘portfolio elements’ that spread risk across the assets. They had modified a Loan Market Association (LMA) standard facility agreement, with both parties assessing the risk to come up with a financing model for PRS debt in the UK based on the appropriate covenants and interest cover.

Aaron Knight, director at PGIM Real Estate Finance, said: ‘On a global basis, PGIM Real Estate Finance have been a long supporter of the PRS/ Multi-family product.

‘In building our lending platform in the UK, we quickly determined that Fizzy Living were at the forefront of the industry and a business that we wanted to support.

‘Financing the two Lewisham assets is a further extension of that relationship, which we hope to continue as the Fizzy development pipeline comes to fruition.’

Fizzy was launched with £26m of TVH equity in 2012 and then supported by £40m of short-term, mezzanine debt from Macquarie Capital, which was repaid following the equity investment.