Private placements can offer advantages for housing providers
In July housing provider First Wessex announced its first private placement, raising £48 million. It is one of a number of social housing private placements this year.
As traditional bank debt remains in short supply, small and medium-sized social housing providers looking to raise between £50 million and £150 million will turn to the capital markets. No longer limited to the larger social housing providers, private placements offer a convenient way to access capital markets.
When compared against ‘own name’ bond issues, private placements have a number of advantages that suit smaller social housing providers. They are unlisted, allow smaller amounts of capital to be raised without the need for a public rating and, considering the longevity of bond financing, they can permit a more personal relationship with investors. They are cheaper than ‘own name’ bond issues, albeit more costly than long-term bank debt.
Private placement investors are also more aware of the opportunities offered by social housing providers. Declining yields available to fixed-income investors from traditional investments, such as gilts and treasury securities, means increased capacity for social housing providers which can offer low-risk, long-term investments.
Social housing providers will be tied into the arrangement for at least 30 years. It will be prohibitively costly to repackage or repay the bond, and the bond will need to be repaid in one or more bullet repayments at a specific date.
There is no doubt that private placements work well for both social housing providers and investors and we would expect to see many more over the next 12 months. Due to the lack of affordable long-term bank finance they are very much a product of the moment.
Louise Leaver is a partner at Winckworth Sherwood