TIDM31PE
RNS Number : 0778L
Canary Wharf Finance II PLC
29 April 2010
CANARY WHARF FINANCE II PLC
29 April 2010
PUBLICATION OF THE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2009
Pursuant to sections 4.1 and 6.3.5 of the Disclosure and Transparency Rules, the
board of Canary Wharf Finance II plc is pleased to announce the publication of
its annual financial report for the year ended 31 December 2009, which will
shortly be available from www.canarywharf.com/Investor Relations.
The information contained within this announcement, which was approved by the
board of directors on 28 April 2010, does not comprise statutory accounts within
the meaning of the Companies Act 2006 and is provided in accordance with section
6.3.5(2)(b) of the Disclosure and Transparency Rules.
Two copies of the 31 December 2009 Annual Financial Report will be submitted to
the UK Listing Authority ("UKLA") in accordance with Paragraph 9.6.1 of the
Listing Rules. The document will shortly be available for inspection at the
UKLA's Document Viewing Facility, which is situated at 25 North Colonnade,
Canary Wharf, London E14 5HS.
BOARD CHANGES
Pursuant to paragraph LR9.6.11 of the Listings Rules, the company confirms that
Peter Harned has been appointed a non-executive director of the Company to
replace Brian Niles who has tendered his resignation as a director. The changes
are effective 28 April 2010.
Peter Harned is currently a director of Songbird Estates plc. There are no other
directorships or details to be disclosed in respect of Mr Harned under LR9.6.13.
Dated : 29 April 2010
Contact for queries
J R Garwood
Company Secretary
Canary Wharf Finance II plc
Telephone: 020 7418 2000
MANAGEMENT REPORT
BUSINESS REVIEW
The following business review aims to provide shareholders with an overall
summary of the business of the company as at 31 December 2009 and during the
year then ended. The main factors likely to affect the future development,
performance and position of the business of the company are set out in the
principal risks and uncertainties section of this Management Report.
This business review should be read in conjunction with the remainder of the
Management Report, the Directors' Report and the financial statements.
At 31 December 2009, the company had GBP2,519,590,161 (2008: GBP2,551,811,921)
of notes listed on the London Stock Exchange and had lent the proceeds to a
fellow subsidiary undertaking, CW Lending II Limited. The notes are secured on
seven properties at Canary Wharf, owned by fellow subsidiary undertakings, and
the rental income therefrom.
On 2 April 2009, a fellow subsidiary undertaking acquired GBP119.7m of the notes
comprising GBP26.1m of B3 notes, GBP35.3m of C2 notes and GBP58.3m of D3 notes.
These notes remain in issue and have not been cancelled.
On 15 September 2008 Lehman Brothers Limited entered into administration in the
UK and its ultimate parent, Lehman Brothers Holdings Inc, applied for Chapter 11
insolvency protection in the USA.
Lehman Brothers Limited (in administration) ('Lehman') currently leases 1.023m
sq ft in 25 Bank Street on a tenancy which is due to expire in July 2033. The
obligations of the lease are guaranteed by Lehman Brothers Holdings Inc, the US
parent. Of the 1.023m sq ft, approximately 358,000 sq ft was sub-let in
December 2008 to Nomura International plc. A further 63,000 sq ft
(approximately) was sub-let to Nomura in March 2010. These sub-leases will
expire in March 2011 subject to breaks in September and December 2010. A
further 126,000 sq ft is sub-let, of which approximately 101,000 sq ft is
sub-let until 2013 and the balance sub-let until September 2010. Each of these
sub-lets will revert to Lehman on the expiry of the various sub-leases. The
current rent payable by Lehman for the entire building increased from GBP53.00
psf to GBP54.59 psf in November 2009.
The securitisation has the benefit of a loan facility agreement ('the HQ2
Facility') with American International Group, Inc. ('AIG') which provides for a
shortfall of the contracted rent under the lease (for example, following a
default by Lehman or its administrators) to be made up by drawing upon the HQ2
Facility. The HQ2 Facility provides for drawings over a period of 4 years from
first drawdown. The amounts drawn are repayable from any recoveries received in
respect of the amounts claimed under the facility and rentals in the properties
which exceed the contracted rents that would have been received from Lehman
under the lease. Under the HQ2 Facility, AIG are obliged to maintain a certain
credit rating. Following the fall in its credit rating, AIG posted cash
collateral of approximately GBP224.0m. This collateral is held in AIG bank
accounts with the Bank of New York Mellon, London branch and AIG has granted
security over the deposits as collateral for its obligations. The amount
initially posted in respect of AIG's obligations is subject to a periodic
adjustment to reflect movements in interest rates.
On 21 January 2010 the administrator acting on behalf of Lehman advised that:
- As from 1 January 2010 Lehman had paid rent in respect of 290,146 sq ft
only, being the areas of 25 Bank Street which it occupied at that time, and not
for the whole of 25 Bank Street; and
- Lehman will move from 25 Bank Street by 31 March 2010 and from 1 April
2010 cease paying rent and estate service charge.
The administrator has since confirmed that Lehman has vacated the building and
the rent for the second quarter has not been paid.
Sub-tenants which currently occupy 547,000 sq ft will continue to pay rent
directly to the securitisation rental receipts account.
Notwithstanding any partial occupation or subsequent vacation of 25 Bank Street
by the administrators, the directors continue to expect full performance of the
Lehman obligations under the lease and payment of rent on 25 Bank Street is
being pursued in line with a recent High Court ruling on administrator
liability. Pending resolution of this issue there was a net shortfall in rental
income of GBP2.6 million within the securitisation structure in the first
quarter of 2010. The shortfall for the second quarter was GBP4.8m. These
shortfalls were, however, satisfied from existing cash resources in a coverage
reserve account established within the securitisation to meet such shortfalls.
There has therefore been no immediate drawdown under the HQ2 Facility Agreement.
Separately, the securitisation has the benefit of an agreement with AIG which
covers the rent in the event of a default by the tenant of 33 Canada Square over
the entire term of the lease. AIG has posted a further GBP276.3 million as cash
collateral in respect of this obligation.
The company also has the benefit of a GBP300.0 million liquidity facility
provided by Lloyds Bank plc, under which drawings may be made in the event of a
cash flow shortage under the securitisation.
As shown in the company's profit and loss account, the company's profit after
tax for the year was GBP55,166,777 (2008: loss of GBP83,850,206). This included
an unrealised fair value gain on derivative financial instruments of
GBP53,852,000 (2008: loss of GBP85,353,000).
The balance sheet shows the company's financial position at the year end and
indicates that net liabilities were GBP82,902,534 (2008: GBP194,252,290).
The financial position of the company as indicated by its balance sheet is
impacted by the application of Financial Reporting Standard 26 (Financial
Instruments: Recognition and Measurement) ('FRS26') and its impact on other
financial reporting standards. Adjusting for the effects of FRS26 the net asset
value of the company at 31 December 2009 was as follows:
+---------------------------------------------+----------------+----------+---------------+
| | | | |
+---------------------------------------------+----------------+----------+---------------+
| | 31 December | | 31 December |
| | | | |
+---------------------------------------------+----------------+----------+---------------+
| | 2009 | | 2008 |
+---------------------------------------------+----------------+----------+---------------+
| | GBP | | GBP |
+---------------------------------------------+----------------+----------+---------------+
| Net liabilities per statutory balance sheet | (82,902,534) | | (194,252,290) |
+---------------------------------------------+----------------+----------+---------------+
| Add back: Effects of FRS26 | 86,380,000 | | 197,460,000 |
+---------------------------------------------+----------------+----------+---------------+
| Adjusted net assets | 3,477,466 | | 3,207,710 |
+---------------------------------------------+----------------+----------+---------------+
KEY PERFORMANCE INDICATORS
+------------------------------------+---------------+---------------+
| | 31 December | 31 December |
+------------------------------------+---------------+---------------+
| | 2009 | 2008 |
+------------------------------------+---------------+---------------+
| | GBP | GBP |
+------------------------------------+---------------+---------------+
| Securitised debt | 2,519,590,161 | 2,551,811,921 |
+------------------------------------+---------------+---------------+
| Financing cost (before adjustments | 153,304,806 | 154,263,224 |
| for FRS26) | | |
+------------------------------------+---------------+---------------+
| Adjusted profit before tax and | 269,755 | 420,039 |
| FRS26 | | |
+------------------------------------+---------------+---------------+
| | | |
+------------------------------------+---------------+---------------+
| Weighted average maturity of debt | 17.1 years | 17.9 years |
+------------------------------------+---------------+---------------+
| Weighted average interest rate | 6.2% | 6.2% |
+------------------------------------+---------------+---------------+
The adjusted profit before tax comprises the profit on ordinary activities
before tax of GBP55,166,777 (2008: loss of GBP83,850,206) adjusted for the FRS
26 items listed in Note 3, totalling GBP54,897,022 (2008: GBP84,270,245).
PRINCIPAL RISKS AND UNCERTAINTIES
The risks and uncertainties facing the business are monitored through continuous
assessment, regular formal quarterly reviews and discussion at Canary Wharf
Group plc audit committee and board level. Such discussion focuses on the risks
identified as part of the system of internal control which highlights key risks
faced by the company and allocates specific day to day monitoring and control
responsibilities to management. As a member of Canary Wharf Group, the current
key risks of the company include the cyclical nature of the property market,
concentration risk and financing risk.
Cyclical nature of the property market
The valuation of Canary Wharf Group's assets is subject to many external
economic and market factors. The turmoil in the financial markets during 2008
and 2009 was reflected in the property market by such factors as the oversupply
of available space in the office market, a significant decline in tenant demand
for space in London and a change in the market perception of property as an
investment resulting in a negative impact on property valuations in general. In
the latter half of 2009 and since the year end there have been signs of a
tightening of supply which has resulted in an increase in valuation and
compression of yields. Changes in financial and property markets are kept under
constant review so that the company can react appropriately. The impact of the
ongoing uncertainty in the financial and property markets continues to be
closely monitored.
Concentration risk
The majority of Canary Wharf Group's real estate assets are currently located on
or adjacent to the Canary Wharf Estate with tenants that are mainly linked to
the financial services industry. Wherever possible steps are taken to mitigate
or avoid any material consequence arising from this concentration.
Financing risk
The broader economic cycle inevitably leads to movements in inflation, interest
rates and bond yields.
The company holds debenture finance, at both fixed and floating rates and uses
interest rate swaps or caps to modify exposure to interest rate fluctuations.
All of the company's borrowings are fixed after taking account of interest rate
hedges. All borrowings are denominated in sterling and the company has no
intention to borrow amounts in currencies other than sterling.
The company enters into derivative financial instruments solely for the purposes
of hedging its financial liabilities. No derivatives are entered into for
speculative purposes.
The company is not subject to externally imposed capital requirements.
The company's securitisation is subject to a maximum loan minus cash to value
('LMCTV') ratio covenant.
The maximum LMCTV ratio is 100.0%. Based on the 31 December 2009 valuations of
the properties upon which the company's notes are secured, the LMCTV ratio at
the interest payment date in January 2010 would have been 83.8%, excluding the
GBP224.0m of cash collateral posted by AIG in respect of 25 Bank Street (Note
10), and 76.2% including such cash collateral. The securitisation is not
subject to a minimum interest coverage ratio.
A breach of covenant can be remedied by depositing eligible investments
(including cash).
Exposure Management
The mark-to-market positions of all the company's derivatives are reported to
the Group Treasurer on a monthly basis and to the directors on a quarterly
basis. The Group Treasurer monitors hedging activity on an ongoing basis, in
order to notify the directors of any overhedging that may potentially occur and
proposals to deal with such events.
Hedging Instruments and Transaction Authorisation
Instruments that may be used for hedging interest rate exposure include:
- Interest rate swaps
- Interest rate caps, collars and floors
- Gilt locks
Instruments that may be used for managing foreign exchange exposure include:
- Cross currency swaps
- Spot and forward foreign exchange contracts
No hedging activity is undertaken without explicit authority of the board.
Transaction Accounting
Under FRS26, all derivatives are required to be measured on balance sheet at
fair value (mark-to-market).
Certain derivatives may be designated as part of a hedge relationship, whereby
the derivative and the underlying hedged item (financial instrument) are
accounted for in a manner in order to reduce profit and loss account volatility
('hedge accounting').
In order to apply hedge accounting, the company must comply with the following
procedures:
- All hedge relationships proposed must be in line with the company's risk
management policy stated above.
- All hedge relationships must be documented in advance, stating the purpose,
including the nature of the risk being hedged, the type of hedge being
undertaken, the item being hedged and the related hedging instrument and the
methodology to be adopted to assess and measure the hedge effectiveness.
- Provide supporting documentation to include excerpts from loan or debenture
issuance documentation, detailing principal and amortisation schedules and
relevant excerpts from hedging derivative documentation.
- Both prospective and retrospective effectiveness testing are undertaken and
approved by the Group Financial Controller.
Credit Risk
The group's policies restrict the counterparties with which derivative
transactions can be contracted and cash balances deposited. This ensures that
exposure is spread across a number of approved financial institutions with high
credit ratings.
All other debtors are receivable from other group undertakings.
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2009
+------------------------+------+--------------+----------+---------------+
| | | 31 December | | 31 December |
| | | | | |
+------------------------+------+--------------+----------+---------------+
| | | 2009 | | 2008 |
+------------------------+------+--------------+----------+---------------+
| | Note | GBP | | GBP |
+------------------------+------+--------------+----------+---------------+
| Administrative | | (13,950) | | (13,950) |
| expenses | | | | |
+------------------------+------+--------------+----------+---------------+
| OPERATING LOSS | | (13,950) | | (13,950) |
+------------------------+------+--------------+----------+---------------+
| | | | | |
+------------------------+------+--------------+----------+---------------+
| Interest receivable | 2 | 153,588,511 | | 154,697,213 |
| and similar income | | | | |
+------------------------+------+--------------+----------+---------------+
| Interest payable and | 3 | (98,407,784) | | (238,533,469) |
| similar charges | | | | |
+------------------------+------+--------------+----------+---------------+
| PROFIT/(LOSS) ON | | 55,166,777 | | (83,850,206) |
| ORDINARY ACTIVITIES | | | | |
| BEFORE TAXATION | | | | |
+------------------------+------+--------------+----------+---------------+
| | | | | |
+------------------------+------+--------------+----------+---------------+
| Tax on profit/(loss) | 4 | - | | - |
| on ordinary activities | | | | |
+------------------------+------+--------------+----------+---------------+
| LOSS ON ORDINARY | 9 | 55,166,777 | | (83,850,206) |
| ACTIVITIES AFTER | | | | |
| TAXATION FOR THE YEAR | | | | |
+------------------------+------+--------------+----------+---------------+
Movements in reserves are shown in Note 9 of these financial statements.
All amounts relate to continuing activities in the United Kingdom.
The Notes numbered 1 to 12 form an integral part of these financial statements.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 31 DECEMBER
2009
+-----------------------------------------------------------+----------------------------+----------+---------------+
| | Year Ended | | Year Ended |
+-----------------------------------------------------------+----------------------------+----------+---------------+
| | 31 December | | 31 December |
+-----------------------------------------------------------+----------------------------+----------+---------------+
| | 2009 | | 2008 |
+-----------------------------------------------------------+----------------------------+----------+---------------+
| | GBP | | GBP |
+-----------------------------------------------------------+----------------------------+----------+---------------+
| Profit/(loss) for the financial year | 55,166,777 | | (83,850,206) |
+-----------------------------------------------------------+----------------------------+----------+---------------+
| Fair value movement on effective hedging instruments | 51,512,715 | | (87,373,784) |
+-----------------------------------------------------------+----------------------------+----------+---------------+
| Interest paid/(received) on effective hedging instruments | 5,715,286 | | (3,744,216) |
+-----------------------------------------------------------+----------------------------+----------+---------------+
| Hedge reserve recycling | (1,045,022) | | (1,082,755) |
+-----------------------------------------------------------+----------------------------+----------+---------------+
| Total recognised gains/(losses) relating to the year | 111,349,756 | | (176,050,961) |
+-----------------------------------------------------------+----------------------------+----------+---------------+
The Notes numbered 1 to 12 form an integral part of these financial statements.
BALANCE SHEET AS AT 31 DECEMBER 2009
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| | | Year Ended | | Year Ended |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| | | 31 December | | 31 December |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| | | 2009 | | 2008 |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| | Note | GBP | | GBP |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| CURRENT ASSETS | | | | |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| Debtors | 5 | | | |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| Amounts falling due after one year | | 2,534,909,653 | | 2,593,864,979 |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| Amounts falling due within one year | | 88,744,717 | | 63,939,148 |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| Cash at bank | 6 | 1,513,916 | | 1,031,711 |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| | | 2,625,168,286 | | 2,658,835,838 |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| CREDITORS: Amounts falling due within one year | 7 | (86,781,165) | | (61,763,148) |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| NET CURRENT ASSETS | | 2,538,387,121 | | 2,597,072,690 |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| TOTAL ASSETS LESS CURRENT LIABILITIES | | 2,538,387,121 | | 2,597,072,690 |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| | | | | |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| CREDITORS: Amounts falling due after more than one year | 8 | (2,621,289,655) | | (2,791,324,980) |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| NET LIABILITIES | | (82,902,534) | | (194,252,290) |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| | | | | |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| CAPITAL AND RESERVES | | | | |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| Called-up share capital | | 50,000 | | 50,000 |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| Hedging reserve | 9 | (32,717,455) | | (88,900,434) |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| Profit and loss account | 9 | (50,235,079) | | (105,401,856) |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
| SHAREHOLDER'S DEFICIT | 10 | (82,902,534) | | (194,252,290) |
+------------------------------------------------------------+----------------+-----------------+----------------+-----------------+
The Notes numbered 1 to 12 form an integral part of these financial statements.
NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2009
1. PRINCIPAL ACCOUNTING POLICIES
This announcement does not constitute the company's statutory accounts for the
year ended 31 December 2009 but is derived from those accounts. The statutory
accounts for the year ended 31 December 2009 will be delivered to the Registrar
of Companies following the company's annual general meeting. The auditors have
reported on those accounts and their report was unqualified, did not contain a
reference to any matters to which the auditors drew attention by way of emphasis
without qualifying the report and did not contain statements under sections
498(2) or (3) of the Companies Act 2006.
This announcement has been prepared on the basis of the accounting policies set
out in the company's financial statements for the year ended 31 December 2009,
which are prepared in accordance with UK generally accepted accounting
principles. Such accounting policies have been applied consistently in all
material respects throughout the current and previous years.
In accordance with the provisions of FRS 1 (Revised) the company is exempt from
the requirements to prepare cash flow statements, as it is a wholly-owned
subsidiary of Canary Wharf Group plc, which has prepared a consolidated cash
flow statement.
Going concern
The directors are required to prepare the financial statements for each
financial year on
a going concern basis, unless to do so would not be appropriate. Having
made requisite
enquiries, the directors have a reasonable expectation that the company
has adequate
resources to continue its operations for the foreseeable future and
hence the financial
statements have been prepared on that basis.
At 31 December 2009 the company had a deficit of GBP82,902,534
attributable solely to
the adoption of FRS26. Under the requirements of the standard the
company
recognises the fair value of its derivative financial instruments in the
balance sheet. In
the event that the company was to realise the fair value of the
derivative financial
instruments, it would have the right to recoup its losses as a repayment
premium on its
loans to CW Lending II Limited. The standard does not permit this
potential asset to be
accounted for in conjunction with the hedges.
Notwithstanding the deficit in net assets resulting from the treatment
of derivative
financial instruments required by FRS26, the directors have prepared the
financial
statements on a going concern basis on the grounds that the company will
be able to
meet its obligations as they fall due for a period of not less than 12
months from the
date of the financial statements.
The directors have also reached the view that the value of the company's
assets at the
balance sheet date was not less than the amount of its liabilities for
the purposes of
Section 123(2) of the Insolvency Act 1986.
2.INTEREST RECEIVABLE AND SIMILAR INCOME
+-----------------------------------------+-------------+----------+-------------+
| | | | |
+-----------------------------------------+-------------+----------+-------------+
| | 31 | | 31 |
| | December | | December |
+-----------------------------------------+-------------+----------+-------------+
| | 2009 | | 2008 |
+-----------------------------------------+-------------+----------+-------------+
| | GBP | | GBP |
+-----------------------------------------+-------------+----------+-------------+
| Bank interest receivable | 30,373 | | 164,282 |
+-----------------------------------------+-------------+----------+-------------+
| Interest receivable from group | 153,558,138 | | 154,532,931 |
| undertakings | | | |
+-----------------------------------------+-------------+----------+-------------+
| | 153,588,511 | | 154,697,213 |
+-----------------------------------------+-------------+----------+-------------+
3.INTEREST PAYABLE AND SIMILAR CHARGES
+------------------------------------------------------------+--------------------+--------------------+--------------------+
| | Year Ended | | Year Ended |
+------------------------------------------------------------+--------------------+--------------------+--------------------+
| | 31 December | | 31 December |
+------------------------------------------------------------+--------------------+--------------------+--------------------+
| | 2009 | | 2008 |
+------------------------------------------------------------+--------------------+--------------------+--------------------+
| | GBP | | GBP |
+------------------------------------------------------------+--------------------+--------------------+--------------------+
| Interest payable on securitised debt (Note 8) | 153,304,806 | | 154,263,224 |
+------------------------------------------------------------+--------------------+--------------------+--------------------+
| Fair value adjustments on derivative financial instruments | (53,852,000) | | (85,353,000) |
+------------------------------------------------------------+--------------------+--------------------+--------------------+
| Hedging reserve recycling | (1,045,022) | | (1,082,755) |
+------------------------------------------------------------+--------------------+--------------------+--------------------+
| | 98,407,784 | | 238,533,469 |
+------------------------------------------------------------+--------------------+--------------------+--------------------+
Included in the interest payable on securitised debt is GBP1,457,104 (2008:
GBPnil) payable to a fellow subsidiary undertaking in respect of notes acquired
during the year (Note 8).
4.TAXATION
+---------------------------------------------------------------------------------------------+----------------+----------+--------------+
| | Year Ended | | Year Ended |
+---------------------------------------------------------------------------------------------+----------------+----------+--------------+
| | 31 December | | 31 December |
| | | | |
+---------------------------------------------------------------------------------------------+----------------+----------+--------------+
| | 2009 | | 2008 |
+---------------------------------------------------------------------------------------------+----------------+----------+--------------+
| | GBP | | GBP |
+---------------------------------------------------------------------------------------------+----------------+----------+--------------+
| Current tax: | | | |
+---------------------------------------------------------------------------------------------+----------------+----------+--------------+
| UK Corporation tax (see below) | - | | - |
+---------------------------------------------------------------------------------------------+----------------+----------+--------------+
| | | | |
+---------------------------------------------------------------------------------------------+----------------+----------+--------------+
| Tax reconciliation: | | | |
+---------------------------------------------------------------------------------------------+----------------+----------+--------------+
| Profit/(loss) on ordinary activities before tax | 55,166,777 | | (83,850,206) |
+---------------------------------------------------------------------------------------------+----------------+----------+--------------+
| | | | |
+---------------------------------------------------------------------------------------------+----------------+----------+--------------+
| Tax on profit/(loss) on ordinary activities at UK corporation tax rate of 28% (2008: 28.5%) | 15,446,698 | | (23,897,309) |
+---------------------------------------------------------------------------------------------+----------------+----------+--------------+
| | | | |
+---------------------------------------------------------------------------------------------+----------------+----------+--------------+
| Effects of: | | | |
+---------------------------------------------------------------------------------------------+----------------+----------+--------------+
| Items not chargeable to tax | (15,371,166) | | - |
+---------------------------------------------------------------------------------------------+----------------+----------+--------------+
| Expenses not deductible for tax purposes | - | | 24,017,020 |
+---------------------------------------------------------------------------------------------+----------------+----------+--------------+
| Tax losses and other timing differences | (75,532) | | (119,711) |
+---------------------------------------------------------------------------------------------+----------------+----------+--------------+
| Current tax charge for the year | - | | - |
+---------------------------------------------------------------------------------------------+----------------+----------+--------------+
The tax rate for the prior year of 28.5% was calculated by reference to the
current
corporation tax rate of 28% which was in effect for the final three quarters of
that year and
the previous rate of 30% which was in effect for the first quarter of that year.
No provision for corporation tax has been made since the taxable profit for the
year will be
covered by the group relief expected to be made available to the company by
other
companies in the group. No charge will be made by other group companies for the
surrender
of group relief. There is no unprovided deferred taxation.
5.DEBTORS
+-----------------------------------------------+----------------+----------+---------------+
| | | | |
+-----------------------------------------------+----------------+----------+---------------+
| | 31 December | | 31 December |
| | | | |
+-----------------------------------------------+----------------+----------+---------------+
| | 2009 | | 2008 |
+-----------------------------------------------+----------------+----------+---------------+
| | GBP | | GBP |
+-----------------------------------------------+----------------+----------+---------------+
| Due within one year: | | | |
+-----------------------------------------------+----------------+----------+---------------+
| Loan to fellow subsidiary undertaking | 86,617,063 | | 61,804,637 |
+-----------------------------------------------+----------------+----------+---------------+
| Amount owed by fellow subsidiary undertakings | 2,126,381 | | 2,122,931 |
+-----------------------------------------------+----------------+----------+---------------+
| Accrued interest receivable | 1,273 | | 11,580 |
+-----------------------------------------------+----------------+----------+---------------+
| | 88,744,717 | | 63,939,148 |
+-----------------------------------------------+----------------+----------+---------------+
| Due in more than one year: | | | |
+-----------------------------------------------+----------------+----------+---------------+
| Loan to fellow subsidiary undertaking | 2,534,909,653 | | 2,593,864,979 |
+-----------------------------------------------+----------------+----------+---------------+
The loans to a fellow subsidiary undertaking bear fixed rates of interest
between 5.31% and 6.81% and are repayable in instalments between 2010 and 2035.
Amounts owed by group undertakings are non-interest bearing.
The amount of the loan due within one year comprises GBP29,084,423 (2008:
GBP29,582,877) of
interest and GBP57,532,640 (2008: GBP32,221,760) of capital.
The carrying values of debtors due within one year also represent their fair
values. The fair
value of the loans to group undertakings at 31 December 2009 was
GBP2,289,728,000 (2008:
GBP2,132,110,000), calculated by reference to the fair values of the company's
financial
liabilities. The carrying value of financial assets represents the company's
maximum
exposure to credit risk.
6.FINANCIAL ASSETS
The company's financial assets comprise loans to fellow group
undertakings, cash at bank and derivative financial instruments.
Cash at bank totalled GBP1,513,916 at 31 December 2009 (2008:
GBP1,031,711), comprising GBP1,504,720 in Sterling (2008: GBP1,022,516),
GBP1,474 (EUR2,432) in Euros (2008: GBP1,473/EUR2,432) and GBP7,722 (US$11,012) in
US Dollars (2008: GBP7,722/$11,012), all of which was held as cash collateral
for the company's borrowings and has a term of one month or less.
Cash at bank earns interest at floating rates linked to bank deposit
rates.
7.CREDITORS: Amounts falling due within one year
+-----------------------------------------+----------------+----------+-------------+
| | | | |
+-----------------------------------------+----------------+----------+-------------+
| | 31 December | | 31 December |
| | | | |
+-----------------------------------------+----------------+----------+-------------+
| | 2009 | | 2008 |
+-----------------------------------------+----------------+----------+-------------+
| | GBP | | GBP |
+-----------------------------------------+----------------+----------+-------------+
| Securitised debt (Note 8) | 86,774,115 | | 61,756,248 |
+-----------------------------------------+----------------+----------+-------------+
| Accruals and deferred income | 7,050 | | 6,900 |
+-----------------------------------------+----------------+----------+-------------+
| | 86,781,165 | | 61,763,148 |
+-----------------------------------------+----------------+----------+-------------+
The amount of the securitised debt due within one year comprises
GBP29,241,475 (2008: GBP29,534,488) of interest and GBP57,532,640 (2008:
GBP32,221,760) of capital.
8.CREDITORS: Amounts falling due after more than one year
+-----------------------------------------+----------------+----------+---------------+
| | | | |
+-----------------------------------------+----------------+----------+---------------+
| | 31 December | | 31 December |
| | | | |
+-----------------------------------------+----------------+----------+---------------+
| | 2009 | | 2008 |
+-----------------------------------------+----------------+----------+---------------+
| | GBP | | GBP |
+-----------------------------------------+----------------+----------+---------------+
| Securitised debt | 2,534,909,655 | | 2,593,864,980 |
+-----------------------------------------+----------------+----------+---------------+
| Derivative financial instruments | 86,380,000 | | 197,460,000 |
+-----------------------------------------+----------------+----------+---------------+
| | 2,621,289,655 | | 2,791,324,980 |
+-----------------------------------------+----------------+----------+---------------+
The securitised debt has a face value of GBP2,519.6m (2008: GBP2,551.8m) of
which GBP1,793.6m (2008: GBP1,825.8m) carries fixed rates of interest between
5.95% and 6.8%. The other GBP726.0m (2008: GBP726.0m) carries floating rates of
interest at LIBOR plus a margin. The company uses interest rate swaps to hedge
exposure to the variability in cash flows on floating rate debt caused by
movements in market rates of interest. The hedged rates of the floating rate
notes, including margins, are between 5.11% and 5.80%.
The amounts at which borrowings are stated comprise:
+-----------------------------------------+----------------+----------+---------------+
| | | | |
+-----------------------------------------+----------------+----------+---------------+
| | 31 December | | 31 December |
| | | | |
+-----------------------------------------+----------------+----------+---------------+
| | 2009 | | 2008 |
+-----------------------------------------+----------------+----------+---------------+
| | GBP | | GBP |
+-----------------------------------------+----------------+----------+---------------+
| Brought forward | 2,626,086,740 | | 2,631,990,588 |
+-----------------------------------------+----------------+----------+---------------+
| Repaid in year | (32,221,760) | | (6,910,880) |
+-----------------------------------------+----------------+----------+---------------+
| Amortisation of issue premium | (4,990,672) | | (5,024,307) |
+-----------------------------------------+----------------+----------+---------------+
| Accrued financing expenses | 3,567,987 | | 6,031,339 |
+-----------------------------------------+----------------+----------+---------------+
| | 2,592,442,295 | | 2,626,086,740 |
| Carried forward | | | |
+-----------------------------------------+----------------+----------+---------------+
| | | | |
+-----------------------------------------+----------------+----------+---------------+
| Payable within one year or on demand | 57,532,640 | | 32,221,760 |
+-----------------------------------------+----------------+----------+---------------+
| Payable after more than one year | 2,534,909,655 | | 2,593,864,980 |
+-----------------------------------------+----------------+----------+---------------+
| | 2,592,442,295 | | 2,626,086,740 |
+-----------------------------------------+----------------+----------+---------------+
Certain of the A1, A3 and B notes were issued at a premium which is
being amortised to the profit and loss account on a straight-line basis over the
life of the relevant notes. At 31 December 2009 GBP63,252,808 (2008:
GBP68,243,480) remained unamortised.
On 2 April 2009, a fellow subsidiary undertaking acquired GBP119,778,000
of notes comprising GBP26,101,000 of B3 notes, GBP35,338,000 of C2 notes and
GBP58,339,000 of D2 notes. These notes remain in issue and have not been
cancelled.
The notes are secured on seven properties at Canary Wharf, owned by
fellow subsidiary undertakings, and the rental income stream therefrom. These
properties include 25 Bank Street, leased to Lehman, which was placed into
administration in September 2008.
The securitisation has the benefit of the HQ2 Facility with AIG which
provides for a shortfall of the contracted rent under the lease (for example,
following a default by Lehman or its administrator) to be made up by drawing
upon the HQ2 Facility. The HQ2 Facility provides for drawings over a period of
4 years from first drawdown. The amounts drawn are repayable from any
recoveries received in respect of the amounts claimed under the facility and
rentals in the properties which exceed the contracted rents that would have been
received from Lehman under the lease. Under the HQ2 Facility, AIG is obliged to
maintain a certain credit rating. Following the fall in its credit rating, AIG
posted cash collateral of approximately GBP224.0m. This collateral is held in
AIG bank accounts with the Bank of New York Mellon, London branch and AIG has
granted security over the deposits as collateral for its obligations. The amount
initially posted in respect of AIG's obligations is subject to a periodic
adjustment to reflect movements in interest rates.
Separately, the securitisation has the benefit of an arrangement with
AIG which covers the rent in the event of a default by the tenant of 33 Canada
Square, over the entire term of the lease. AIG has posted a further GBP276.3m as
cash collateral in respect of this obligation.
The annual fees payable in respect of the above arrangements currently
total GBP7.5m.
The company also has the benefit of a GBP300.0m liquidity facility
provided by Lloyds, under which drawings may be made in the event of a cash flow
shortage under the securitisation. This facility is renewable annually.
The market value of the securitised debt at 31 December 2009 was
GBP2,203.4m (2008: GBP1,934.6m).
The fair values of the sterling denominated notes have been determined by
reference to prices available on the markets on which they are traded.
The weighted average maturity of the debentures at 31 December 2009 was
17.1 years (2008: 17.9 years).
After taking into account the interest rate hedging arrangements, the
weighted average interest rate of the company at 31 December 2009 was 6.2%
(2008: 6.2%).
At 31 December 2009 the fair value of interest rate derivatives resulted
in the recognition of a net liability of GBP86,380,000 (2008: GBP197,460,000).
Of this net liability GBP44,501,000 (2008: GBP101,729,000) was in respect of
interest rate swaps which qualify for hedge accounting and GBP41,879,000 (2008:
GBP95,731,000) was in respect of interest rate swaps and collars which do not
qualify for hedge accounting.
The fair values of the derivative financial instruments have been
determined by reference to market values provided by the relevant counter party
and have been classified as level 2, as defined in accordance with FRS 29
Financial Instruments: Disclosures.
The terms of the derivative financial instruments correlate with the
terms of the financial instruments to which they relate. Consequently the cash
flows and effect on profit or loss are expected to arise over the term of the
financial instrument.
9.RESERVES
+------------------------------------------------+-----------------+-------------+-------------------------+-------------+---------------+
| | Hedging reserve | | Profit and loss account | | Total |
+------------------------------------------------+-----------------+-------------+-------------------------+-------------+---------------+
| | GBP | | GBP | | GBP |
+------------------------------------------------+-----------------+-------------+-------------------------+-------------+---------------+
| At 1 January 2009 | (89,909,434) | | (105,401,856) | | (194,302,290) |
+------------------------------------------------+-----------------+-------------+-------------------------+-------------+---------------+
| Profit for the year | - | | 55,166,777 | | 55,166,777 |
+------------------------------------------------+-----------------+-------------+-------------------------+-------------+---------------+
| Fair value movement on effective | 51,512,715 | | - | | 51,512,715 |
| hedging instruments | | | | | |
+------------------------------------------------+-----------------+-------------+-------------------------+-------------+---------------+
| Interest paid on effective hedging instruments | 5,715,286 | | - | | 5,715,286 |
+------------------------------------------------+-----------------+-------------+-------------------------+-------------+---------------+
| Transferred to the profit and loss account: | | | | | |
+------------------------------------------------+-----------------+-------------+-------------------------+-------------+---------------+
| Movements on discontinued | (1,045,022) | | - | | (1,045,022) |
| hedge accounting | | | | | |
+------------------------------------------------+-----------------+-------------+-------------------------+-------------+---------------+
| At 31 December 2009 | (32,717,455) | | (50,235,079) | | (82,952,534) |
+------------------------------------------------+-----------------+-------------+-------------------------+-------------+---------------+
Movements on discontinued hedge accounting relate to the B2 and C1
interest rate swaps, for which the hedging instruments have been novated but the
forecast transactions to which they relate are still expected to occur.
10.RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' DEFICIT
+-----------------------------------------------------------+----------------+----------+---------------+
| | | | |
+-----------------------------------------------------------+----------------+----------+---------------+
| | 31 December | | 31 December |
| | | | |
+-----------------------------------------------------------+----------------+----------+---------------+
| | 2009 | | 2008 |
+-----------------------------------------------------------+----------------+----------+---------------+
| | GBP | | GBP |
+-----------------------------------------------------------+----------------+----------+---------------+
| Opening shareholders' deficit | (194,252,290) | | (18,201,329) |
+-----------------------------------------------------------+----------------+----------+---------------+
| Profit/(loss) for the year | 55,166,777 | | (83,850,206) |
+-----------------------------------------------------------+----------------+----------+---------------+
| Fair value movement on effective hedging instruments | 51,512,715 | | (87,373,784) |
+-----------------------------------------------------------+----------------+----------+---------------+
| Interest paid/(received) on effective hedging instruments | 5,715,286 | | (3,744,216) |
+-----------------------------------------------------------+----------------+----------+---------------+
| Transferred to the profit and loss account: | | | |
+-----------------------------------------------------------+----------------+----------+---------------+
| Movements on discontinued hedge | (1,045,022) | | (1,082,755) |
| accounting | | | |
+-----------------------------------------------------------+----------------+----------+---------------+
| Closing shareholders' deficit | (82,902,534) | | (194,252,290) |
+-----------------------------------------------------------+----------------+----------+---------------+
11.POST BALANCE SHEET EVENTS
On 21 January 2010 the administrator acting on behalf of Lehman advised
that:
- As from 1 January 2010 Lehman had paid rent in respect of 290,146 sq
ft only, being the areas of 25 Bank Street which it occupied at that time, and
not for the whole of 25 Bank Street; and
- Lehman will move from 25 Bank Street by 31 March 2010 and from 1
April 2010 cease paying rent and estate service charge.
The administrator has since confirmed that Lehman has vacated the
building and the rent for the second quarter has not been paid.
The securitisation has the benefit of a loan facility agreement with AIG
which provides for a shortfall of the contracted rent under the lease to be made
up by a drawing under such facility. The facility provides for drawings over a
period of 4 years from first drawdown, which had yet to occur at the date of
approving these financial statements.
12.CONTINGENT LIABILITIES AND FINANCIAL COMMITMENTS
As at 31 December 2009 the company had given a fixed charge over all its
assets, including first fixed charges over its bank accounts, to secure the
notes referred to in Note 8.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR KKCDBPBKDCQB
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