Thursday, 24 April 2014

Bond tap nets Places for People £150m

Places for People has raised £148 million with a bond issue in the midst of a storm of negative publicity for housing associations.

The deal was completed the week after Tenant Services Authority chief executive Peter Marsh told a committee of MPs that there were six housing associations facing ‘heightened risk’ to their financial viability. PfP was forced to release a statement saying it was not on the list, after press coverage of Mr Marsh’s comments prompted questions from investors.

Phil Jenkins, director of global infrastructure at RBC Capital Markets, which arranged the bond issue, said: ‘If you are in front of a commons select committee and someone asks you a direct question, it’s very difficult not to answer that.

‘But when you start talking about a particular number of associations singled out for special attention the first question everyone asks is who are they and am I lending money to one of them?’

He added: ‘It’s a good sign that investors were able to take their own views on major housing association credits, and not get overly distracted by the press and publicity around the sector.’

PfP raised £148.1 million with the bond issue, which is repayable in 2024. Finance director Steve Binks said with the money raised from the bonds PfP now had facilities of more than £300 million to draw on, which he expected to fund the association’s plans for around two years.

Investors will get a return of 6.97 per cent. The high price is further evidence of the effect the credit crunch is having on social housing finance. Mr Jenkins said the cost was equivalent to a bank loan of around 3 per cent above Libor, the rate at which banks lend to each other. A year ago banks were offering housing associations margins of less than 0.3 per cent. But this was not a realistic comparison, he said, because the credit crunch means it is not currently possible for associations to raise that amount of money in the form of loans from banks.

‘Realistically, the credit spreads we have seen of 25 to 30 basis points above Libor, or historic spreads we have seen in the bond market, are unlikely to return for a long period of time - if ever,’ Mr Jenkins said. ‘There was a lending bubble across all parts of the market, and we are now seeing the correction of that excess.’

Mr Binks added that he expected the cost of housing association finance to rise even higher.

‘We are forecasting expenditure we will need to make in 2009 and 2010, and we’re planning well in advance of needing the money.

‘We went before Christmas because we think after Christmas quite a lot of debt issuance is going to come to the market, and that means debt spreads could widen beyond what they are now,’ he explained.

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