17 Sep 2014 07:00
For immediate release 17 September 2014
Dignity plc
Issue of Exchange Offer Memorandum and Preliminary Prospectus by Dignity Finance PLC
Potential Return of Capital to Shareholders
Dignity (the 'Group') is pleased to announce the launch of a proposal to the existing holders of its securitised debt, which if approved, is expected to result in the Group materially increasing the quantum and extending the duration of its debt obligations. As a result of the proposal, the Group's annual debt service obligations would be expected to reduce from circa £40m to circa £34m per annum and approximately £1.00 per ordinary share would be returned to shareholders (a total of circa £54m).
The interim dividend declared on 30 July 2014 will still be paid on 31 October 2014 and will not be affected by this announcement.
Rationale
Since its flotation in April 2004, Dignity has 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. 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.
The process
Dignity Finance PLC (the 'Issuer') (a subsidiary of Dignity (2002) Limited, the holding company of the securitised sub-group of Dignity plc) has today called meetings of the Class A and Class B Secured Notes ('Existing Notes'), which will be held on 9 October 2014.
The purpose of these meetings is to approve a proposal (the 'Exchange Offers') 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'). The New Notes are expected to have final maturity dates of 2034 and 2049 respectively. The Coupon will be fixed and the principal will amortise over the life of the Notes. As such, the New Notes reflect a similar structure to the Existing Notes and the Group's annual debt service obligation will be constant year on year but at a lower overall quantum. The New Notes are expected to be rated A and BBB respectively by both S&P and Fitch.
The Exchange Offers have been made available on the terms and subject to the conditions set out in the Exchange Offer Memorandum. The Exchange Offers have been considered by Existing Noteholders representing approximately 40 per cent in aggregate of the outstanding principal amount of the Existing Class A Notes and approximately 49 per cent in aggregate of the outstanding principal amount of the Existing Class B Notes. They have informed the Issuer that they find the Exchange Offers acceptable and that they intend to accept the Exchange Offers and approve the Extraordinary Resolutions.
If all the proposals presented to the meeting 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 using a similar process to that used in 2013. 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. Given the longer duration of the New Notes, the overall annual debt service is anticipated to be circa £34m per annum, approximately £6m lower than the current level paid by the Group.
The Existing Notes are currently recognised on the Group's balance sheet as a total liability of circa £406m, with circa £15m of issue costs offset against this amount in accordance with accounting standards. If the proposals are implemented, given the Existing Notes trade at a premium and the issuance of additional debt for cash, the overall balance sheet liability will increase to approximately £580m. Issue costs relating to the Existing Notes and the Exchange Offer will be written off in accordance with appropriate accounting standards. Consequently, there will be a one-off charge to the Group's income statement in 2014 of approximately £105m to £115m. This amount will be excluded from the Group's underlying performance measures.
If noteholders vote in favour of the resolutions at the respective meetings, any decision to implement the Exchange Offers will be subject to market conditions prevailing at the time and there can be no guarantee at this stage that the New Notes will be issued or that there will be a Return of Capital to shareholders.
The estimates made in this announcement are based on current market conditions and gilt yields. Changes to these prior to the completion of the process may adversely impact the amounts described.
Mike McCollum, Chief Executive of Dignity plc, commented:
"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."
A conference call for analysts will be held at 8.00am BST on 17 September 2014. Please contact Buchanan if you have not received dial in details and wish to attend the call.
For more information
Mike McCollum, Chief Executive
Steve Whittern, Finance Director
Dignity plc +44 (0) 207 466 5000
Richard Oldworth
Sophie McNulty
Clare Akhurst
Buchanan +44 (0) 207 466 5000
www.buchanan.uk.com
Forward-looking statements
This announcement may include forward-looking statements, in particular the words "expect", "anticipate", "estimate", "may", "should", "plans", "intend", "will", "believe", "continue" and similar expressions (or in each case their negative and other variations or comparable terminology) can be used to identify forward-looking statements. These forward-looking statements are statements regarding the Company's intentions, beliefs or current expectations concerning, among other things, the Group's results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which the Group operates. These statements are based on expectations of external conditions and events, current business strategy, plans and the other objectives of management for future operations, and estimates and projections of the Group's financial performance. These expectations may prove to be erroneous. By their nature, forward-looking statements involve risks and uncertainties, many of which are outside of the control of the Group. The forward-looking statements are not guarantees of future performance and the Group's actual results of operations, performance, achievements, cash flows and dividends and/or industry results may differ materially from those made in or suggested by the forward-looking statements contained in this announcement. Save as required by applicable law and regulation, the Company does not undertake any obligation to review, update or confirm expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events that occur due to any change in the Company's board of directors' expectations, or to reflect circumstances that arise after the date of this announcement.