Thursday, 02 October 2014

Association pays a high price for first unsecured issue on UK market

Places for People issues £175m bond

Places for People has raised £175 million in the social housing sector’s first unsecured issue on the UK bond market.

The 62,000-home landlord issued the landmark 20-year bond on Tuesday. But the unsecured bond - which means it is based solely on the creditworthiness of the organisation and not underwritten by its assets - came at a price. The spread over gilt (the price minus the cost of government borrowing) was 170 basis points, making it the highest priced bond in the sector since Genesis’ £250 million, 170 basis points issue in December 2009.

Chris Jones, treasurer at Places for People, admitted the association was initially hoping for a spread of 125 basis points. He added: ‘We also had feedback that the uncertainty around the sector, including the new affordable rent programme and whether housing benefit is paid direct to the landlord, was also a factor [in the price].’

It is the third unsecured bond issue for Places for People but the first in the UK. Last month it raised £76 million on the US bond market and last July raised £76 million on the Japanese market.

Mr Jones said unsecured issues allowed associations to raise finance more flexibly and quickly without tying up assets, but admitted it posed a bigger risk to investors. He denied Places for People went for an unsecured bond because it is no longer able to raise finance on secured issues.

Andy Sweeney, director of financial institution and corporate bond syndication at Royal Bank of Canada, said the price for unsecured bonds is generally around 50 per cent higher than secured issues.

Gavin Smart, assistant director for research and futures at the National Housing Federation, welcomed news of the bond. He said: ‘This opens up a new model the sector can use to finance itself.’

The bond was issued through the association’s £650 million European medium term note programme, run by Places for People, which allows it to issue a series of bonds using pre-agreed terms and conditions.

Last five bond issues on the UK market

Places for PeopleMay 2011£175 million170
The Housing Finance CorporationMarch 2011£31 million105
PeabodyMArch 2011£200 million100
The Housing Finance CorporationJanuary 2011£76.6 million99
Circle AngliaNovember 2010£110 million110

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