Kellan Group Regulatory News (KLN)

AIM: KLN

26 October 2016

The Kellan Group PLC

("Kellan", the "Company" or "Group")

Redemption of Convertible Loan Notes and Refinancing

The Company is pleased to announce that it has concluded a refinancing package for the majority of its loan obligations that were due in February and September 2017. The debt restructuring plan improves the Company's balance sheet whilst reducing ongoing financing costs. The Company has redeemed £385,000 nominal of the 12% secured convertible loan notes 2010 ("2010 Loan Notes") and £661,000 nominal of the 12% unsecured convertible loan notes 2011 ("2011 Loan Notes") at a price of 70p for every £1 nominal. Following these redemptions, £150,000 nominal of 2010 Loan Notes and £150,000 nominal 2011 Loan Notes remain outstanding which are due to be redeemed on 14 February 2017.

The £732,200 cost of the redemptions has been funded as to £366,100 by drawdown on the confidential invoice discounting facility provided to the Company by Barclays Bank plc. The remaining £366,100 has been funded by BMN Commercial Limited ("BMN Commercial") through a secured six-year loan with a nominal value of £523,000, issued at 70 per cent. of par and carrying a coupon of 5 per cent. per annum (the "BMN Commercial Loan").  BMN Commercial is a company owned by the family of Paul Bell, who is interested in 62 per cent. of the issued share capital of the Company. This BMN Commercial Loan means that the Company has passed on 50% of the 30 per cent. of par discount it has secured for the 2010 and 2011 Loan Notes with the other 50% benefit going directly to the Company's balance sheet.

Prior to the refinancing the Company had the following loans from Paul Bell:

- A secured term loan of £1,260,000 carrying an interest rate of 4 per cent. per annum and repayable on 20 September 2017; and

- An unsecured convertible loan note of £600,000 nominal carrying an interest rate of 4 per cent. per annum and redeemable on 20 September 2017.

Following the refinancing, the Company has the following loans and facilities from BMN Commercial:

- A secured term loan of £1,260,000 (ranking behind Barclays Bank plc ("Barclays") and ahead of the 2010 Loan Notes) carrying an interest rate of 5 per cent. per annum and repayable on 20 September 2022;

- A fixed rate secured loan note of £600,000 (ranking behind the 2010 Loan Notes) carrying an interest rate of 5 per cent. per annum and repayable on 20 September 2022; and

- A fixed rate secured loan note of £523,000 (ranking behind Barclays and ahead of the 2010 Loan Notes), issued at 70 per cent. of par, carrying an interest rate of 5 per cent. per annum and repayable on 20 September 2022 (together these three loans are "the New Loans").

Additionally, the Company also has a revolving secured facility of £366,100 from BMN Commercial (ranking behind Barclays and ahead of the 2010 Loan Notes) capable of drawdown at any time up to 20 August 2022, carrying an interest rate of 5 per cent. per annum and repayable on 20 September 2022 ("the Revolving Facility"). The Revolving Facility is effectively a replacement for the Barclays drawdown to ensure the overall Company headroom is unaffected. The Barclays drawdown is at a substantially lower rate of 1.6%+base (1.85%), than the Revolving Facility and ensures the Company uses its cheapest means of funding first.

Under the AIM Rules, BMN Commercial is deemed to be a related party. Accordingly, the independent directors of the Company consider, having consulted with the Company's nominated adviser, Allenby Capital Limited, that the terms of the New Loans with BMN Commercial and the Revolving Facility provided by BMN Commercial are fair and reasonable so far as the shareholders of Kellan are concerned.

Richard Ward, Executive Chairman, commented, "the redemption of the majority of 2010 Loan Notes and 2011 Loan Notes and the refinancing of the loans that were due in Sept 2017 until Sept 2022 places the Company in a stronger financial position, improving its balance sheet and reducing its ongoing financing costs."

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