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AHF bond breaks £1bn issuance barrier
The Housing Finance Corporation (THFC) has priced an £88m tap of its second long-term bond under its government-backed finance scheme today, bringing the total bond to more than £1bn invested for the first time.
The tap was priced at 0.28% above the cost of government borrowing (gilts), which is a record low pricing above gilts.
At 2.06%, the all-in cost was below the 2.24% all-in pricing of its previous January 2017 tap. However, this is 0.3 percentage points higher than the existing record pricing above the gilt rate, which took place last July.
The bond was issued through Affordable Housing Finance (AHF) – a subsidiary of aggregator THFC – which is the partner for the £3.5bn Affordable Homes Guarantees Programme.
This sees the UK government use its balance sheet to underpin payment obligations across bonds and loans from the European Investment Bank (EIB).
The housing association recipients of today’s finance scheme are Watford Community Housing Trust, Yarlington Housing Group, Mosscare Housing, West Kent, and Yorkshire Housing. Watford Community Housing Trust is the biggest borrower at £30m.
THFC said that since January, long-term gilt spreads had been volatile, fluctuating by a range of 0.4% during February. THFC said this “reflected current geo-political and economic uncertainty”.
Piers Williamson, chief executive of THFC, said: “It’s perhaps not surprising that some [housing associations] want to lock in at these absolute levels. In meeting the government’s policy goal of delivering badly needed affordable homes, they want as much certainty as possible in managing their cost bases.”
Commenting on the tight spread of the deal, Mr Williamson added: “It’s not quite that we have left the best until last, but investors remain keen to scoop up bonds in the primary market whenever they are available. We are into the tail end of the AHF programme, but we still have some retained bonds and potentially another deal to do later this year and then that will be it.”
The official close for new applications to participate in the Affordable Housing Guarantee Scheme was March 2016. Since then, AHF has been working through the pipeline of eligible borrowers.
AHF said it estimated that by summer 2017 it would have lent more than £3bn under the government’s Affordable Homes Guarantees Programme. This is split around 50:50 between long-term institutional finance from the sterling bond market and long-term lending from the EIB.
