Summary
AvalonBay Communities, Inc. (AVB) announced on November 14, 2006, the execution of a new $650 million revolving variable rate unsecured credit facility. This facility replaces a previous $500 million credit line and offers greater flexibility and potentially lower borrowing costs. Key improvements include an increased size with an option to expand to $1 billion, a longer four-year term with a one-year extension option, and more favorable pricing terms, including a lower annual facility fee and a reduced interest rate spread over LIBOR. The company also noted the elimination of a previous covenant that restricted dividend payments to 95% of FFO, a change that could be beneficial for REIT status compliance and shareholder distributions.
Key Highlights
- 1Entered into a new $650 million revolving unsecured credit facility, replacing a previous $500 million facility.
- 2Facility has a four-year term, with an option to extend for an additional year.
- 3Potential to increase the facility size to $1 billion through additional voluntary commitments from banks.
- 4Improved pricing terms include a lower annual facility fee (0.125% vs. 0.15%) and a reduced interest spread over LIBOR (0.40% vs. 0.55%).
- 5Interest rate spread can vary from LIBOR + 0.325% to LIBOR + 1.00% based on credit rating.
- 6Competitive bid option available for up to 65% of the facility amount, potentially allowing for even lower borrowing rates.
- 7Elimination of a covenant restricting dividends to 95% of FFO, which may facilitate REIT status maintenance and shareholder distributions.
Frequently Asked Questions
The new $650 million credit facility is significant because it increases the company's borrowing capacity, extends its debt maturity profile, and offers more favorable pricing and flexibility compared to its previous credit line. This enhanced financial flexibility can support the company's growth initiatives and operational needs.
The new facility offers improved pricing. The annual facility fee is 0.125%, down from 0.15% previously. The stated interest rate spread over LIBOR is 0.40%, compared to 0.55% under the old facility. The spread can further fluctuate based on AVB's credit rating, ranging from LIBOR + 0.325% to LIBOR + 1.00%.
The removal of the covenant that limited dividend payments to 95% of FFO (except to maintain REIT status) is a positive development. It provides AvalonBay with greater flexibility in managing its dividend policy, potentially allowing for higher distributions to shareholders or ensuring easier compliance with REIT requirements without the previous constraint.
The initial size of the credit facility is $650 million. However, AvalonBay has the option to increase this facility by an additional $350 million, bringing the aggregate size up to $1 billion, provided that one or more banks voluntarily agree to commit additional funds.