TIDM31PE TIDMTTM
RNS Number : 2762N
Canary Wharf Finance II PLC
31 August 2011
CANARY WHARF FINANCE II PLC
31 August 2011
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 half yearly financial
report for the period ended 30 June 2011, 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 30 August 2011, 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 30 June 2011 Half Yearly 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.
Dated: 30 August 2011
CONTACT FOR QUERIES:
J R Garwood
Company Secretary
Canary Wharf Finance II plc
Telephone: 020 7418 2000
INTERIM MANAGEMENT STATEMENT
This interim management statement relates to the six months
ended 30 June 2011 and contains information that covers the period
from 1 January 2011 to 30 August 2011, the date of publication of
this interim management statement.
BUSINESS REVIEW
The company is a wholly owned subsidiary of Canary Wharf Group
plc and its ultimate parent undertaking is Songbird Estates
plc.
Canary Wharf Finance II plc is a finance vehicle that issues
securities which are backed by commercial mortgages over high
profile properties within the Canary Wharf estate. The company is
engaged in the provision of finance to the Canary Wharf group,
comprising Canary Wharf Group plc and its subsidiaries ('the
group'). All activities take place within the United Kingdom.
At 30 June 2011, the company had GBP2,433,291,200 (31 December
2010: GBP2,462,057,521) 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.
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. At 30 June 2010
AIG had posted GBP259.4 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.
Following publication of its latest criteria for assessing
counterparty risk in all new and existing structured finance
securities and covered bonds, Standard and Poor's Financial
Services LLC ("S&P") duly downgraded the notes on 15 July 2011.
Following this downgrade, the ratings of the notes were as
follows:
Class Moody's Fitch S&P
------ -------- ------ ----
A1 Aaa AAA A+
A3 Aaa AAA A+
A7 Aaa AAA A+
B A1 AA A+
B3 A1 AA A+
C2 Baa1 A A
D2 Ba1 BB BBB
Other than the downgrade in the rating of the notes, no
significant non-routine events or transactions occurred during the
period from 1 January 2011 to 30 August 2011.
As shown in the company's profit and loss account, the company's
profit after tax for the six month period was GBP4,154,338 (period
ended 30 June 2010: loss of GBP29,162,260).
The balance sheet shows the company's financial position at the
period end and indicates that net liabilities were GBP110,938,565
(31 December 2010: GBP122,749,050).
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)
('FRS 26') and its impact on other financial reporting standards.
FRS 26 requires recognition of the mark to market of derivative
financial instruments, which hedge the company's exposure to
interest rate fluctuations, but the mark to market of the company's
debtor loan and securitised debt has not been recognised. Adjusting
for the effects of FRS 26 the net asset value of the company at 30
June 2011 was as follows:
Audited Unaudited Unaudited
31 December 30 June 30 June
2010 2011 2010
GBP GBP GBP
Net
liabilities
per balance
(122,749,050) sheet (110,938,565) (142,758,625)
Add back:
Effects of
126,478,135 FRS 26 114,792,615 146,361,000
----------------------------------- ---------------------------------- ----------------------------------
Adjusted
3,729,085 net assets 3,854,050 3,602,375
===================================================== ===================================================== ==================================================
KEY PERFORMANCE INDICATORS
Audited Unaudited Unaudited
31 December 30 June 30 June
2010 2011 2010
GBP GBP GBP
2,462,057,521 Securitised debt 2,433,291,200 2,490,823,841
Financing cost (before
150,011,694 adjustments for FRS26) 73,428,874 75,205,877
Adjusted profit before tax
251,619 and FRS26 124,965 124,909
Weighted average maturity
16.5 years of debt 16.2 years 16.8 years
Weighted average interest
6.2% rate 6.2% 6.2%
The adjusted profit before tax comprises the profit on ordinary
activities before tax of GBP4,154,338 (period ended 30 June 2010:
loss of GBP29,162,260) adjusted for the FRS 26 items listed in Note
3, totalling GBP4,029,373 (period ended 30 June 2010:
GBP29,287,169).
GOING CONCERN
The directors are required to prepare the financial statements
for each financial period 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 30 June 2011 the company had a deficit of GBP110,938,565
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 were 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.
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.
These risks, which are summarised below are unchanged from the
risks and uncertainties disclosed in the directors' report to the
financial statements for the year ended 31 December 2010.
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, throughout 2010 and the first half of
2011 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 the 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 material consequences
arising from this concentration.
Financing risk
The broader economic cycle inevitably leads to movement in
inflation, interest rates and bond yields.
The company holds debenture finance in sterling at both fixed
and floating rates and uses interest rate swaps to modify its
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 2010
valuations of the properties upon which the company's notes are
secured, the LMCTV ratio at the interest payment date in July 2011
would have been 73.1%. The securitisation is not subject to a
minimum interest coverage ratio. The 30 June 2011 valuations were
not available at the date of signing this interim management
statement.
A breach of covenant can be remedied by depositing eligible
investments (including cash).
DIRECTORS' RESPONSIBILITY STATEMENT
The board of directors, comprising A P Anderson II, R J J Lyons
(as alternate to A P Anderson II), G Iacobescu, J R Garwood (as
alternate to G Iacobescu) and P Harned, confirms to the best of its
knowledge that:
-- the condensed set of financial statements, which has been
prepared in accordance with the applicable set of accounting
standards give a true and fair view of the assets, liabilities,
financial position and profit or loss of the company as required by
Rule 4.1.12 (3a) of the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority (the 'DTRs'); and
-- the interim management statement includes a fair review of
the information required by Rule 4.2.7 of the DTRs (indication of
important events during the first six months and description of
principal risks and uncertainties for the remaining six months of
the year).
PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED 30 JUNE
2011
Audited Unaudited Unaudited
Year ended Six months Six months
31 December ended ended
2010 Note 30 June 2011 30 June 2010
GBP GBP GBP
Administrative
(14,100) expenses (7,350) (7,050)
----------------------------------- ---------------------------------- ----------------------------------
(14,100) OPERATING LOSS (7,350) (7,050)
Interest
receivable
and similar
150,277,413 income 2 73,561,189 75,337,836
Interest
payable and
similar
(167,124,503) charges 3 (69,399,501) (104,493,046)
----------------------------------- ---------------------------------- ----------------------------------
PROFIT/(LOSS)
ON ORDINARY
ACTIVITIES
BEFORE
(16,861,190) TAXATION 4,154,338 (29,162,260)
Tax on profit/(loss) on
- ordinary activities 4--
----------------------------------- ---------------------------------- ----------------------------------
PROFIT/(LOSS)
ON ORDINARY
ACTIVITIES
AFTER
TAXATION FOR
THE
(16,861,190) PERIOD/YEAR 8 4,154,338 (29,162,260)
==================================================== ================================================= =================================================
Movements in reserves are shown in Note 8 of this Half Yearly
Financial Report.
All amounts relate to continuing activities in the United
Kingdom.
The Notes numbered 1 to 9 form an integral part of this Half
Yearly Financial Report.
The Half Yearly Financial Report for the six months ended 30
June 2011 was approved by the Board of Directors on 30 August
2011.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE SIX
MONTHS ENDED 30 JUNE 2011
Audited Unaudited Unaudited
Year ended Six months Six months
31 December ended ended
2010 30 June 2011 30 June 2010
GBP GBP GBP
Profit/(loss)
for the
financial
(16,861,190) period/year 4,154,338 (29,162,260)
Fair value
movement on
effective
hedging
(38,123,761) instruments 207,571 (38,282,920)
Interest paid
on effective
hedging
16,144,271 instruments 7,936,734 8,096,920
Hedge reserve
(1,005,836) recycling (488,158) (507,831)
----------------------------------- ---------------------------------- ----------------------------------
Total
recognised
gains/(losses)
relating to
the
(39,846,516) period/year 11,810,485 (59,856,091)
==================================================== ================================================= =================================================
The Notes numbered 1 to 9 form an integral part of this Half
Yearly Financial Report.
BALANCE SHEET AT 30 JUNE 2011
Audited Unaudited Unaudited
31 December 30 June 30 June
2010 2011 2010
GBP GBP GBP
CURRENT
ASSETS
Debtors 5
Amounts
falling
due
after
one
2,476,097,668 year 2,446,747,119 2,505,469,849
Amounts
falling
due
within
one
88,243,855 year 87,166,992 88,405,287
Cash at
1,554,889 bank 1,689,129 1,441,134
----------------------------------- ---------------------------------- ----------------------------------
2,565,896,412 2,535,603,240 2,595,316,270
CREDITORS:
Amounts
falling
due within
(86,069,657) one year 6 (85,002,071) (86,244,045)
----------------------------------- --------------------------------- ----------------------------------
NET CURRENT
2,479,826,755 ASSETS 2,450,601,169 2,509,072,225
----------------------------------- ---------------------------------- ----------------------------------
TOTAL ASSETS
LESS CURRENT
2,479,826,755 LIABILITIES 2,450,601,169 2,509,072,225
CREDITORS:
Amounts
falling
due after
more than
(2,602,575,805) one year 7 (2,561,539,734) (2,651,830,850)
----------------------------------- ---------------------------------- ----------------------------------
NET
(122,749,050) LIABILITIES (110,938,565) (142,758,625)
==================================================== ================================================== ==================================================
CAPITAL AND
RESERVES
Called-up share
50,000 capital 50,000 50,000
Hedging
(55,702,781) reserve 8 (48,046,634) (63,411,286)
Profit and
loss
(67,096,269) account 8 (62,941,931) (79,397,339)
----------------------------------- ---------------------------------- ----------------------------------
SHAREHOLDER'S
(122,749,050) DEFICIT (110,938,565) (142,758,625)
===================================================== =================================================== ==================================================
The Notes numbered 1 to 9 form an integral part of this Half
Yearly Financial Report.
NOTES TO THE INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE
2011
1. PRINCIPAL ACCOUNTING POLICIES
The Half Yearly Financial Report has been prepared on a going
concern basis and in accordance with pronouncements on interim
reporting issued by the Accounting Standards Board and on the basis
of the accounting policies set out in the company's financial
statements for the year ended 31 December 2010, which are prepared
in accordance with UK GAAP.
The financial information relating to the six months ended 30
June 2011 and 30 June 2010 is unaudited.
The results for the year ended 31 December 2010 are not
statutory accounts. A copy of the statutory accounts for the year
has been delivered to the Register of Companies. The auditor's
report on those accounts was not qualified, did not contain any
reference to any matters which the auditor drew attention by way of
emphasis without qualifying the report and did not contain
statements under Section 498(2) or (3) of the Companies Act
2006.
In accordance with the provisions of FRS 1 (Revised) the company
is exempt from the requirements to prepare a cash flow statement,
as it is a wholly-owned subsidiary of Canary Wharf Group plc, which
has prepared a consolidated cash flow statement.
2. INTEREST RECEIVABLE AND SIMILAR INCOME
Audited Unaudited Unaudited
Year ended Six months Six months
31 December ended ended
2010 30 June 2011 30 June 2010
GBP GBP GBP
Bank
interest
16,892 receivable 11,176 7,870
Interest
receivable
from group
150,260,521 undertakings 73,550,013 75,329,966
----------------------------------- ---------------------------------- ----------------------------------
150,277,413 73,561,189 75,337,836
==================================================== ===================================================== ======================================================
3. INTEREST PAYABLE AND SIMILAR CHARGES
Audited Unaudited Unaudited
Year ended Six months Six months
31 December ended ended
2010 30 June 2011 30 June 2010
GBP GBP GBP
Interest
payable on
securitised
debt (Note
150,011,694 7) 73,428,874 75,205,877
Fair value
adjustments
on
derivative
financial
18,118,645 instruments (3,541,215) 29,795,000
Hedge
reserve
recycling
(1,005,836) (Note 8) (488,158) (507,831)
----------------------------------- ---------------------------------- ----------------------------------
167,124,503 69,399,501 104,493,046
====================================================== ==================================================== ===================================================
Included in the interest payable on securitised debt is
GBP843,381 (30 June 2010: GBP749,746) payable in respect of notes
acquired by a fellow subsidiary undertaking.
4. TAXATION
No provision for corporation tax has been made since the taxable
profit for the period 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
Audited Unaudited Unaudited
31 December 30 June 30 June
2010 2011 2010
GBP GBP GBP
Due within
one year:
Loan to
fellow
subsidiary
86,109,563 undertaking 85,040,671 86,284,622
Amounts owed
by fellow
subsidiary
2,132,406 undertakings 2,124,006 2,119,331
Accrued
interest
1,886 receivable 2,315 1,334
----------------------------------- ---------------------------------- ----------------------------------
88,243,855 87,166,992 88,405,287
==================================================== ================================================== ==================================================
Due after
more than
one year:
Loan to
fellow
subsidiary
2,476,097,668 undertaking 2,446,747,119 2,505,469,849
==================================================== =================================================== ==============================================
The loans to a fellow subsidiary undertaking bear fixed rates of
interest between 5.12% and 6.81% and are repayable in instalments
between 2005 and 2035. At 30 June 2011 the fair value of the loan
was GBP2,497,546,981 (31 December 2010: GBP2,564,980,000,
calculated by reference to the fair values of the company's
financial liabilities.
Other amounts owed by group companies are non-interest
bearing.
6. CREDITORS: Amounts falling due within one year
Audited Unaudited Unaudited
31 December 30 June 30 June
2010 2011 2010
GBP GBP GBP
Securitised
debt (Note
86,062,607 7) 84,996,071 86,236,995
Accruals
and
deferred
7,050 income 6,000 7,050
----------------------------------- ---------------------------------- ----------------------------------
86,069,657 85,002,071 86,244,045
==================================================== ================================================= =================================================
The amount of the securitised debt due within one year comprises
GBP27,463,431 (31 December 2010: GBP28,529,967) of interest and
GBP57,532,640 (31 December 2010: GBP57,532,640) of capital.
7. CREDITORS: Amounts falling due after more than one year
Audited Unaudited Unaudited
31 December 30 June 30 June
2010 2011 2010
GBP GBP GBP
Securitised
2,476,097,670 debt 2,446,747,119 2,505,469,850
Derivative
financial
126,478,135 instruments 114,792,615 146,361,000
----------------------------------- ---------------------------------- ----------------------------------
2,602,575,805 2,561,539,734 2,651,830,850
==================================================== ==================================================== =====================================================
The amounts at which borrowings are stated comprise:
Audited Unaudited Unaudited
31 December 30 June 30 June
2010 2011 2010
GBP GBP GBP
Brought
2,592,442,295 forward 2,533,630,310 2,592,442,295
Repaid in
(57,532,640) period (28,766,321) (28,766,320)
Amortisation
of issue
(4,847,330) premium (2,353,564) (2,442,816)
Accrued
financing
3,567,985 expenses 1,769,334 1,769,331
----------------------------------- ---------------------------------- ----------------------------------
Carried
2,533,630,310 forward 2,504,279,759 2,563,002,490
==================================================== =================================================== ===================================================
Payable
within
one
year or
on
57,532,640 demand 57,532,640 57,532,640
Payable
after
more
than
one
2,476,097,670 year 2,446,747,119 2,505,469,850
----------------------------------- ---------------------------------- ----------------------------------
2,533,630,310 2,504,279,759 2,563,002,490
==================================================== =================================================== ===================================================
The company's securitised debt was issued in tranches,
comprising classes A1, A3, A7, B, B3, C2 and D2. 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 30 June 2011 GBP56,051,914 (31 December
2010: GBP58,405,478) remained unamortised.
At 30 June 2011 there were accrued financing costs of
GBP14,936,645 (31 December 2010: GBP13,167,311) relating to future
increases in margins as described below.
The securitised debt has a face value of GBP2,433,291,200 (31
December 2010: GBP2,462,057,521), of which GBP1,707,291,200 (31
December 2010: GBP1,736,057,521) carries fixed rates of interest
between 5.95% and 6.80%. The other GBP726,000,000 (31 December
2010: GBP726,000,000) of the securitised debt 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 notes, including the margins, are
between 5.11% and 5.80%.
The market value of the securitised debt at 30 June 2011 was
GBP2,382,754,366 (31 December 2010: GBP2,441,522,000). At 30 June
2011 the fair value of the interest rate derivatives resulted in
the recognition of a liability of GBP114,792,615 (31 December 2010:
GBP126,478,135). Of this liability, GBP58,336,185 was in respect of
interest rate swaps which qualify for hedge accounting (31 December
2010: GBP66,480,490) and GBP56,456,430 was in respect of interest
rate swaps which do not qualify for hedge accounting (31 December
2010: GBP59,997,645).
GBP26,101,000 of B3 notes, GBP35,338,000 of C2 notes and
GBP58,339,000 of D2 notes are held by a fellow subsidiary
undertaking.
The notes are secured on seven properties at Canary Wharf, owned
by fellow subsidiary undertakings, and the rental income stream
therefrom.
8. RESERVES
Profit and
Hedging reserve loss account Total
GBP GBP GBP
At 1 January 2011 (55,702,781) (67,096,269) (122,799,050)
Profit for the period - 4,154,338 4,154,338
Fair value movement on
effective hedging
instruments 207,571 - 207,571
Interest paid on effective
hedging instruments 7,936,734 - 7,936,734
Transferred to the profit and loss account:
Movements on
discontinued
hedge
accounting (488,158) - (488,158)
------------------------------- ---------------------------- ----------------------------------
At 30 June
2011 (48,046,634) (62,941,931) (110,988,565)
========================================== =============------==----========= ============================================
9. CONTINGENT LIABILITIES AND FINANCIAL COMMITMENTS
As at 30 June 2011 and 31 December 2010 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
7.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR ZMGFRNGVGMZM
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