Vincent Tchenguiz - Peverel

Complex funding arrangement used to take control of Peverel.

Vincent Tchenguiz breaks new ground

Property tycoon Vincent Tchenguiz, whose interests range from green investments to financial services has been extremely active of late and this week raised more than £500m through a ground-breaking financing deal involving a complicated series of interest rate and inflation swap transactions, reports the FT.

Mr Tchenguiz, chairman of Consensus Business Group, completed the purchase of Peverel, the property manager and freehold property owner, from US owner Holiday Retirement Corporation using one of the longest “hedge” transactions of its size.

Merrill Lynch provided the finance for the deal, which has allowed Mr Tchenguiz to fix a low rate of interest from the long-term income provided by the property assets owned by Peverel. Merrill intends to sell a portion of the £500m debt package to investors.

The deal comes at a time when private equity firms are causing concern among City analysts because of often short-term borrowings for big corporate acquisitions, which are also seen as light on the covenants necessary to ensure safe repayment.

Merrill Lynch has executed inflation and interest rate swaps with an equivalent hedge length of 80 years, beyond the standard length of up to 50 years offered on the index-linked and nominal gilt market. This has allowed Mr Tchenguiz to borrow at a cost of capital that is significantly lower than bank lending rates, thought to be around 4.55 per cent.

Peverel, which owns some 57,000 UK property freeholds, offers a safe level of income for up to 125 years, and the inflation swap – which effectively fixes the rate of growth of the income over a period – enables cash flow to be leveraged effectively, the FT says.

Mr Tchenguiz said Consensus would now own a portfolio of 300,000 freeholds, with another 200,000 under management.

His latest move comes amid speculation over whether Mr Tchenguiz will bid for Erinaceous, the UK property services company, after 3i, the private equity firm, withdrew from the race late last week.

It also follows news of a deal agreed earlier this month between Mr Tchenguiz and the Royal Bank of Scotland, which will see the creation of a fund (First UK Residential) that will grow to what they said would be – coincidentally – £500m over five years. The company will buy homes “off-plan” 18 months before they are completed and later let them under its brand name. The vehicle eventually would be floated in what could be the UK’s first residential Reit, according to the FT.

The fund will be seeded with an initial £100m in cash and debt with Mr Tchenguiz and RBS investing the same amount of cash into the deal; RBS will provide the debt.

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Gwen Robinson

on Friday, June 8th, 2007 at 8:54 and is filed under

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