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Welsh housing association secures £250m bond
Welsh housing association Pennaf has become the country’s first to issue a public bond after receiving sign-off on a secured £250m package.
The 5,600-home landlord, which last year had a turnover of £34.4m, began seeking investors after retaining its A3 negative credit rating from Moody’s on 23 May.
It will use the money to refinance on 90% of its bank loans and maintain current development figures of 100 units per year, though it would not reveal how much it planned to spend on this programme.
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The £250m consists of £160m issuance while £90m will be retained to be drawn down at a later date. The bond matures in 2052, amortising in five stages.
Pennaf will pay 3.212% interest on the finance, a price which is 1.55% higher than equivalent government borrowing (gilts).
Graham Worthington, chief executive of Pennaf, said the bonds – which include asset and interest cover as covenants – will give the Denbighshire-based association better budgeting ability than its existing bank debt.
He said: “Development was becoming difficult because we had traditional funding through the bank, where there will be changes in terms and interest rates. This gives us a greater degree of certainty.”
He added that the bond was oversubscribed with investors.
“We were anticipating that there would be an appetite for it because there have not been many public bonds issued to housing associations recently, but until you go out to the market you don’t know. Obviously there is an appetite given the offers we received.”
The bond has been issued through a debt-holding vehicle called Pen Arian Housing, established by Pennaf, and the named borrower is Clwyd Alyn Housing Association, a subsidiary of Pennaf Housing Group.
"This gives us a greater degree of certainty,” Graham Worthington
In addition to the bond, the association is waiting on a £25m revolving credit facility which is out to tender and has not yet been signed off.
Housing associations were issuing public bonds of this size regularly until the build-up to the 2015 election, and following policy changes including the cut to rental income and refocusing of grant funding to more for-sale products.
Since then public issuances have been less frequent, with housing associations raising money through government-guaranteed Affordable Housing Finance, the European Investment Bank and traditional bank lending.
The Hyde Group recently raised £400m at an all-in rate of 3%, while A2 Dominion raised £250m with a 12-year unsecured bond priced at 3.56% in November.
