Friday, 01 August 2014

Largest own-name bond issue ‘excellent news’ for the housing sector

Big bond success

Affinity Sutton has raised £250 million through the first bond issue by a single housing association in five years.

The deal is the largest own-name bond ever issued by a housing association, according to RBC Capital Mar­kets, which underwrote and arranged the transaction. Mark Washer, group finance director at Affinity Sutton, said the bond issue was ‘excellent news’ for the sector, at a time when the credit crunch had caused traditional sources of funding to dry up.

‘It seems to be the case that there are only one or two banks left lending to the sector on any scale – and a lot of the business they’re prepared to do is only for existing customers,’ he said.

‘It’s a pretty serious situation for the sector, when it comes to getting anywhere near meeting the government’s expectations in terms of delivery of affordable housing. What this demonstrates is that the capital markets are still there for the sector.’

RBC said the order book for the deal, rated AA2 by ratings agency Moody’s, was oversubscribed. Phil Jenkins, director of global infrastructure at RBC Capital Markets, said: ‘The book for this deal is as strong as we have seen for some time in any sector, confirming that the sterling bond market is open to high quality [social landlord] borrowers.’

Affinity Sutton is one of several associations known to have been preparing bond issues over the summer.

Mr Washer said he ‘fully expected’ a further three or four associations to follow its lead in the next 12 to 18 months. The market for social housing finance has been dominated by a plentiful supply of cheap bank loans for years. But the credit crunch has reduced the small pool of lenders active in the sector and pushed their prices closer to those available in capital markets.

Affinity Sutton’s deal follows an £80 million tap of an existing Housing Finance Corporation bond, on behalf of four borrowers. Mr Jenkins said the pricing of Affin­ity Sutton’s deal compared ‘favourably’ with the rates on offer from the banks. But he added that the real issue driving associations’ interest in the capital markets was the desire to ensure availability of funding.

Mr Washer said the central issue for them had been diversification of funding. ‘We have been clear for years now… that for social landlords with aspirations to grow, the bank markets are simply not big enough.

‘We have had a strategy of moving towards the capital markets for a long time. This was not a reaction to the credit crunch.’

He added that Affinity Sutton had about £200 million in undrawn bank facilities, which he estimated would cover its development programme for two to three years. The bond issue would increase its capacity to react to unforeseen opportunities, such as stock transfers.

The bond is the first AA-rated secured corporate bond to emerge from the sector.

Have your say

You must sign in to make a comment

sign in register

Related

Articles

  • Bromford: ‘How we won ratings success’

    02/05/2014

    Landlord reveals why it is one of the highest-rated landlords by Moody’s

  • First affordable homes guarantee deal expected

    5 December 2013

    Housing minister Kris Hopkins is expected to announce the first deal under a £3.5 billion government guarantee scheme to lower the cost of development finance. 

  • THFC closing in on £500m guarantees deal with EIB

    17 October 2013

    The finance company tasked with securing £3.5 billion of loan guarantees for affordable housing is close to finalising its first £500 million facility with the European Investment Bank.

  • Out of Africa

    15/11/2013

    Our Into Africa competition, sponsored by the London Housing Foundation, gives three lucky readers the chance to visit social housing projects on the continent. Jess McCabe reports on what this year’s winners learned from their prize trips

  • Cosmopolitan: the true story

    22/11/2013

    The financial crisis which hit Cosmopolitan in 2012 and brought the housing association to its knees changed the social housing sector forever. Carl Brown reveals for the first time exactly how it happened and the lessons learned

Resources

  • Exchanging ideas during job swap

    30/05/2014

    When directors at a Staffordshire-based housing association swapped jobs for seven weeks they ended up learning new skills - and saving money. Helen Clifton reports

  • A career fix

    19 June 2014

    Apprenticeships provided by construction firms are helping students straight out of school into employment. Stuart Spear takes a closer look at the opportunities available

  • Need for sustainable drainage

    13 May 2014

    This year’s floods underlined the need to build sustainable drainage systems and if they mimic the natural process of water absorption and dispersion then so much the better, says John Beresford

  • Global reach

    09/08/2013

    Off on holiday this summer? Perhaps you’d prefer to spend a longer stint abroad? Here, Caroline Thorpe speaks to housing professionals based overseas about how their UK experience has gone down among employers on the other side of the world

  • Changing lives

    18/10/2013

    The Andy Ludlow Awards celebrate the very best homelessness services in London. Simon Brandon reveals this year’s winners

IH Subscription