At the start of the year, we had a look at the Alpha Plus Group, a lossmaking educational organisation with close ties to some of the biggest players in London property.
The company was bought from a private equity firm by clients of Delancy Real Estate Management in 2007. That firm is run by Jamie Ritblat, the son of Sir John Ritblat, former chief executive of British Land.
Alpha Plus controls 19 schools, colleges and nurseries, including the prestigious Wetherby School in West London, which counts Princes William and Harry among its alumni.
One of the clearest examples of for-profit education in the UK, Alpha has also borrowed nearly £130m in retail bonds — an approach to financing that has also been used by other organisations with prestige attached to their names, such as by Wasps Rugby Club in 2015.
Having embarked on an ambitious expansion plan, including an attempt to crack the Manhattan market, Alpha Plus was still losing money when we last wrote about them – specifically, £4.2m in the six months to the end of February.
More recently, there have been some interesting developments in the prices of its bonds — one of which matures next month.
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The £80m bond that matures in 2024 is now trading at a yield of 6.7 per cent, compared to 5 per cent when it was issued in 2016. Its price has recently fallen to the low 90s.
The £48.5m bond maturing this year, meanwhile, dropped below par for the first time ever in September. While its price is currently 99.3p, it is technically trading at an annualised yield of 14 per cent, because the maturity date is so imminent.
Both of these issues are secured against prime London property, and are subject to various covenants around the value of that property.
Investors appear to be concerned over the prospect of a Corbyn victory in the election, given that Labour has signalled that it would try to integrate private schools into the public sector. That news emerged in September, the same month in which the prices moved.
A possible private education risk premium combines with the prospect of imminent redemption. The company had £5m in cash, as of the end of February. In the past, the company has said that one option it has to redeem the bonds next month is to issue new bonds, From its filings earlier this year:
The Directors have various options regarding the £48.5m bond redemption in December 2019 including selling all or part of the £50m of March 2024 bonds which are held on the Company’s behalf by Deutsche Bank acting as Security Custodian or arranging alternative financing given the unsecured underlying assets held by the Group and available to provide security.
The price at which it would issue new bonds now looks to be quite a lot more expensive.
The company is ultimately owned by its parent, based in the British Virgin Islands, which has net assets of over £1bn. When we asked about the maturing 2019 bond earlier this year, a spokesperson said it had £42m “on deposit” with its parent company. That money comes from the second bond, which it issued in 2016, and of which it lent £46m to its parent.
The group’s annual results will be published on Companies House in the second week of December, just ahead of the bond’s maturity. We expect further details then.
