You are viewing 1 of your 1 free articles
GB Social Housing hits £250m borrowing benchmark
Bond aggregator GB Social Housing (GBSH) has cleared £250m worth of borrowing with a £34.5m bond tap, hitting its benchmark.
It achieved its cheapest price to date at a 3.64% all-in rate, only 1.8% over the cost of government borrowing.
The issue, completed on 24 November, was the third tap this year for GBSH, which issued a £40.2m bond in March this year after more than a year out of the market, and was four times oversubscribed.
GBSH is one of a number of bond aggregators in the social housing sector aimed at allowing smaller housing associations to team up to access funding. The latest of these, MOR Homes, is preparing to launch with 33 associations and is targeting cheap borrowing of 1% over government borrowing costs.
READ MORE
Now that GBSH has hit its benchmark bond size, it can access a wider range of investors.
Gerhard Oberholzer, director at GBSH, told Inside Housing some recent housing association bonds had priced at ’wide’ margins compared to government borrowing rates.
"For us, there was now a question because we were issuing £34.5m of bonds and that would get us to our benchmark of £250m. So there was that question: do we stop? Do we hold back?" he said.
Mr Oberholzer said that the price was partly down to the smaller sizes of the associations involved in GBSH. He said: “Investors certainly are acknowledging that the smaller [associations] are not necessarily more risk. In fact, they tend to build well within their means, they’ve got very conservative boards, they’re oftentimes well-advised by their treasurers.”
GBSH is planning another tap next year and Mr Oberholzer said he expected market activity to be intense at the start of next year as issuers looked to take advantage of current price levels, fearing that Brexit could make the borrowing environment less favourable.
The association to borrow the largest chunk of the £34.5m was Caledonia Housing Association, which took £17.2m. This is the second time Caledonia has borrowed money through GBSH. It took £14.3m from a tap issued in April 2014.
The other beneficiaries of the latest tap were Mount Green Housing Association, which borrowed £10m, Mid-Wales Housing Association, which took £3.7m and Harrogate Housing Association, which accounted for the remaining £1.8m.
GBSH has issued bonds steadily in relatively small chunks over a five year period to reach benchmark size. Its bond in March was its first deal for more than a year and it previously changed management before setting up as an independent body.
Jargon buster: bonds and tap issues
Bond: Bonds are essentially tradable IOUs issued by companies, governments, housing associations, or others, in order to borrow money on the capital markets.
The ‘coupon’ on a bond is the interest rate that the issuer pays annually on the face value of the bond.
Gilt: The price the government pays for its borrowing.
The spread over gilts is the cost the borrower pays over and above what the government is currently paying.
The cost of government borrowing is used as a baseline because it is considered low risk by investors. The spread is often therefore seen as a measure of an organisation's creditworthiness.
All-in: The total cost of the debt to the bond issuer, ie, the interest rate paid.
Tap issues: Used to raise more money on the same terms and conditions as a previously issued bond- but the price may alter.
