Thirteen housing associations are in talks to create a pioneering new borrowing group which would seek to issue a joint bond of up to £750m – a record for the sector.
The initiative could bring together up to 30 landlords that want to access the bond markets but do not have sufficient scale to achieve competitive interest rates. Neil Hadden, chief executive of Genesis, and investment advisor JCRA are leading the project.
The Sector Borrowing Vehicle, which could be launched as soon as September, has so far involved the production of a feasibility study that will be showcased to delegates at the Housing 2017 conference in Manchester later this month.
Following this first phase, 13 undisclosed housing association sponsors – including landlords of a range of sizes and several G15 members, covering more than 200,000 homes – could be joined by more than a dozen further members in a more detailed second phase.
The vehicle, which would be owned and managed by housing associations, would have its own credit rating and would look to capitalise on investor appetite for housing association lending.
By syndicating housing associations and achieving scale, the members would look to create an entity that is more creditworthy than if they were to try to borrow independently.
However, Howard Webb, director at Capita Asset Services, warned the rating would likely be set according to the lowest rated association in the group, which would be the “weakest link”.
The other option would be to effectively create a risk-sharing arrangement, where the debt is secured against the entirety of the consortium’s portfolio, but this could increase risk for bigger players.
"Housing associations are among the largest borrowers in the UK," Adrian Bell
Genesis has a credit rating of Baa1 from Moody’s – the joint lowest in the sector.
Adrian Bell, head of social housing at JCRA, said that the vehicle could attract much broader support than traditional bond lending, and would be “fundamentally different” to anything the sector has seen before, although several aggregating vehicles did exist in the early 1990s.
He said the vehicle could boost supply by 4,000 to 5,000 homes a year, and called on the new government to encourage greater collaboration between housing associations.
Mr Bell said: “It’s worth doing in large volume or not at all. Housing associations are among the largest borrowers in the UK, and they enjoy a strong credit rating. But many of them are borrowing at levels that substantially disregard that rating.”
INSIDE HOUSING’S VIEW
Recent political upheaval has not favoured housing associations in the bond market.
Under David Cameron, the rent cut undermined incomes, future plans and the state of relations between government and the sector.
The spin doctors’ war of words with the sector conducted through the media compounded doubts over the government’s backing for housing associations.
Increasing exposure to market sale housing as associations sought to continue developing with less government grant placed a stronger emphasis on individual business plans.
Against this backdrop, bond issues became less frequent and prices have become more varied.
The new Sector Borrowing Vehicle, led by Genesis and JCRA, is seeking to buck the trend. The group of 13 housing association sponsors plans to issue a joint bond of up to £750m, and could provide an opportunity to achieve more competitive interest rates. It may also succeed in creating greater focus on the sector’s credentials, rather than solely on individual business plans.
There are barriers to overcome. It is not yet clear how debt would be secured and how members’ different ratings would be reflected. But the concept, though not new, is a welcome departure. If the development aspirations of associations and the government are to be met, a reset is needed.
Emma Maier, editor, Inside Housing