Tribal: club bonds could soar sky high

Consultancy Tribal indicated last week that it feels it is close to agreement with ratings agency Moody’s about changing the way associations that take part in so called ‘club bond’ deals are viewed. Club deals have a similar structure to the model used by the Housing Finance Corporation, in which housing associations join together to raise funds through the capital markets.

Until now, each organisation in the deal had to be rated individually and ratings agencies, such as Moody’s, would base the rating on the risk posed by the weakest housing association, raising costs for the others. In the past, the likes of Harbour Funding - a bond aggregator - whose last deal was in September 2005, were subject to these constraints.

Speaking at the Chartered Institute of Housing’s south east conference in Brighton last week, Mike Jones, consultant at Tribal Treasury Services, said his firm had been involved in long discussions with ratings agencies about altering the approach.

He said: ‘We think we have cracked that now, so expect to see new club deals over the next few weeks. What we have managed to do is get Moody’s to agree that you can get everyone in the club issued up to the same level.’

The arrangements are expected to be contained in Moody’s methodology for ratings in the social housing sector, due to be published later this month. The ratings agency confirmed it was working on the document but would not comment on its likely content.

Piers Williamson, chief executive of THFC, said its own discussions with ratings agencies suggested the weakest housing association would continue to define bond arrangements. He said: ‘The feedback we have had as recently as last week was that they [ratings agencies] would turn over every stone when looking at these arrangements.’

Mr Williamson said THFC had its own credit rating but if it were to set up a new club it would be subject to the existing rules and be rated based on the weakest association in the deal.

‘There are ways around it though,’ he added. ‘The weaker association can put in more cash as security but that can make the deal less efficient for the weaker organisation.’

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