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Housing association's retail charity bond raises £27.5m
A housing association has raised £27.5m of unsecured debt at an interest rate of 4.4%, becoming one of the first to raise significant finance from retail charity investors.
Hightown Praetorian and Churches Housing Association closed a week earlier than planned on Friday, with eight institutional investors joining small scale ethical funders to buy a share of the 10-year deal.
However, investor appetite weakened significantly in the days following the Conservative manifesto pledge to extend the Right to Buy, according to the lead manager.
Adrian Bell, head of debt markets UK at Canaccord Genuity, said: ‘[Hightown] has got a big development programme against its size, so unsecured debt is very attractive for them.
‘We closed it a week early, because we had as much as they wanted but also because the demand fell away.
‘Appetite for housing association paper fell off a cliff last week. The attitude is if you can avoid taking a risk, why would you take it?’
Last week, the Conservative manifesto announced plans to extend the Right to Buy to 1.3m housing association tenants, sparking fears that investors would become unwilling to engage with the sector. Mr Bell’s comments are the first indication of the proposal having an actual impact on investor confidence.
The bond was issued by Retail Charity Bonds Plc, a platform created by social investment charity Allia and Canaccord Genuity. The funds raised will be loaned, via a loan agreement, to Hightown.
Investors will be paid a fixed rate of 4.4% twice annually, with the first payment due on October 30.
The first deal completed under the platform was an £11m deal in July last year on behalf of Mencap subsidiary Golden Lane Housing, which has since registered as a housing association.
Mr Bell said Hightown was attractive to ethical investors due to carrying out a large amount of work such as care and supported housing.
The 4,400-home landlord has a development pipeline of 300 homes per year.
Antoine Pesenti, managing director at consultancy Traderisks, said the deal was ‘very expensive’ even for unsecured debt, equivalent to around 2.8% above the cost of 10-year government bonds (Gilts).
‘Retail investors are not looking at a spread over gilts, they are just interested in the all in rate – so normally it is expensive, but in this very low interest rate environment, it is very, very expensive,’ he said.
