Housing association’s loan is the sector’s best-ever priced own-name bond
Keenly priced bond nets £200m for Hyde
Hyde Group has raised £200 million in a deal that demonstrates the growing availability of cheap bond finance within the sector.
The deal trumped Notting Hill’s £180 million bond deal earlier this month to become what is understood to be the best-ever priced own-name bond deal in the sector.
The bond is the fourth issued in the social housing sector this year, equalling the number of bonds issued in the whole of 2009, as associations move to take advantage of lower interest rates.
Hyde, which owns or manages 45,000 homes, achieved an interest rate of 5.1 per cent, 105 basis points over gilt (the price of government bonds).
The rate was lower than the 5.2 per cent achieved by Notting Hill Housing Trust in a £180 million issue earlier this month and the 5.6 per cent for a
£300 million issue by London & Quadrant in January.
The 30-year Hyde issue was rated Aa2 by Moody’s, meaning it is a low credit risk. The deal gives Hyde the option of raising a further £50 million in the next 18 months. The funds will be used to refinance existing debt and support the building of 1,000 homes.
Grant Shapps, housing minister, said of the Hyde deal: ‘This successful bond issue shows just what can be done when housing associations are innovative in raising money to benefit people in social housing.’
The spread over gilts, (the interest rate minus the price of a government bond, used to calculate relative cost of funds) matched that achieved by the Housing Finance Corporation for three Irish associations in March.
By contrast, according to the Bank of England, the interest rate for a 15-year bank loan is around 250 basis points over London Interbank Offered Rate, which is used to calculate relative interest for bank lending.
Piers Williamson, chief executive of the Housing Finance Corporation, said the rates illustrate how associations can currently get better deals on the bond market than through traditional bank loans. Mr Williamson said the difference in interest rate between London and Quadrant’s bond in January and Hyde’s would equate to approximately an extra £450,000 a funding a year.
Biggest social housing bond deals in the last five years
| HOUSING ASSOCIATION | AMOUNT | DATE ISSUED | SPREAD | COST |
|---|---|---|---|---|
| London & Quadrant | £300m | Januay 2010 | 1.2% | 5.6% |
| Circle Anglia | £275m | October 2008 | 2.7% | 7.3% |
| Affinity Sutton | £250m | September 2008 | 1.6% | 6% |
| GenFinance II (Genesis) | £250m | December 2009 | 1.7% | 6.1% |
| Sanctuary | £200m | March 2009 | 2.6% | 6.6% |
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