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Experts praise L&Q’s £500m deal
The pricing on L&Q’s new £500m bond represents a good deal for the association, experts have told Inside Housing.
London’s largest housing association secured a £500m bond in two tranches last Thursday, at 1% and just over 1.05% more than the cost of government borrowing (the spread).
L&Q split the bond, which is intended to cover its “ambitious” growth plans, into two equal tranches. The first tranche of £250m has a 12-year term of maturity and is 1% more expensive than equivalent government borrowing (gilt rates). This adds up to a total coupon of 2.25%.
The second tranche of £250m is a longer-term deal, with a maturity of 40 years. With government gilt rates for that period set at 1.7% when L&Q priced the deal, it will pay interest of 2.75%.
Howard Webb, director of consultancy Capita Asset Services, told Inside Housing: “It’s pretty good. I’m sure they’re pretty happy about that. Two deals, both under 3% – can’t argue with that.
“L&Q has got a current long-term bond, which is expiring on 27 January 2040, for £300m, which is trading at 2.919%, and the new long-term bond came in at 2.75%, so it’s well under that. You’d normally expect a new issue to come at a slight premium to the existing stock, but it looks as though they’ve come within that.”
Another housing expert commented: “I think the short-dated spread is a bit wide, but the long-dated spread is very attractive, so I guess what has happened is investors have got an equal share of each tranche, and they’ve blended.
“When I was talking to some other interested parties in this, we thought [the spread] would come in at sub-100, so I’m a little surprised it’s just north of that. But it’s still competitive. They’ve got a weighted average of 25 years, two bonds at less than 2.75%. It’s pretty good. It could have been a little bit tighter, but it sounds good.”
The prices were reached after roadshows for investors in the previous week. According to ratings agency Moody’s, the debt will be secured by a portfolio of social housing properties owned by L&Q worth £620m.
L&Q declined to comment on the bond issuance.
The organisation is embarking on a major development drive and plans to build 100,000 homes over the next 10 years – an ambition which would make it one of the largest developers of any kind in the UK.
