Funeral director Dignity proposes new offer to cut debt by £6m
SUTTON Coldfield funeral director, Dignity, is proposing radical new measures to cut its debt levels.
The group, the UK’s only market-listed funeral directors, is trying to tempt securitisation noteholders with a new offer that could ultimately see the business reduce its debt levels by around £6m.
If the move is approved, Dignity said it would result in the group materially increasing its quantum and extending the duration of its debt obligations. As a result, annual debt obligations would reduce from around £40m to £34m per annum and approximately £1.00 per ordinary share would be returned to shareholders (a total of around £54m).
It said the interim dividend declared on July 30, 2014 would still be paid on October 31, 2014 and would not be affected by the new proposal.
It said the reason behind the move was that since its flotation in April 2004, Dignity had periodically issued further secured notes, returning the majority of the net proceeds in each case to shareholders.
“The group believes that given the low interest rate environment and the narrow spreads implicit in the market value of the group’s debt, there is an opportunity to extend the life of its debt and raise new funds,” it said.
“Overall, this will result in the group’s annual debt service obligations reducing by approximately 15% per annum. At the same time, the associated agreements will benefit from various amendments that will help the group operate more efficiently in the future.”
To kick-off the process, Dignity Finance Plc, the issuer, has today called meetings of the Class A and Class B Secured Noteholders for October 9.
The purpose of the meetings is to approve a proposal by the group to redeem all existing Class A and Class B Secured Notes, with noteholders receiving new Class A and Class B Secured Notes in consideration.
The New Notes are expected to have final maturity dates of 2034 and 2049 respectively.
If all the proposals presented to the meetings are approved, the group intends that in addition to the New Notes issued in consideration for the Existing Notes, further New Notes will be issued for cash and that of the anticipated net proceeds of approximately £70m, approximately £54m will be returned to shareholders in November 2014.
This would equate to a return of circa £1.00 per ordinary share. The remainder of the net proceeds will be used to terminate existing hedging arrangements of the group of approximately £5m and contribute £1m to the group’s pension scheme, leaving up to £10m to be retained for future acquisition activity.
Mike McCollum, Chief Executive of Dignity, said: “This is an excellent transaction for both our shareholders and bondholders. These proposals, if approved and implemented, will give the group the opportunity to lock its debt in to the current favourable low interest rate environment for the longer term, whilst maintaining a structure that protects against increasing interest rates and refinancing risk.
“Shareholders are expected to benefit from a return of approximately £1.00 per ordinary share, the fourth return of cash to shareholders since flotation, whilst the group’s annual cost of servicing its debt should reduce by approximately £6m per annum.”
