Sunday, 30 April 2017

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.

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