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Northern housing association issues £250m bond
Northern stock transfer housing association Incommunities has priced a huge £250m bond issue to fund the development of new homes.
After roadshows with investors last week, the Bradford-based association, which manages 22,600 homes, received more than £1bn of orders from nearly 50 institutional investors.
This was Incommunities’ first ever foray into the capital markets, delivering a very large amount of cash for an organisation of its size.
It plans to use the money to build 1,000 social homes and 400 for market sale by 2025, developing across the Leeds City Region.
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It has borrowed the money over 30 years at an overall interest rate of 3.25%, which is 1.57% more expensive than the cost of equivalent government borrowing, the ‘spread’.
This was better than what was achieved by Metropolitan Thames Valley last week, when it issued £100m with a spread of 1.75%.
It was still more expensive than Clarion’s £250m bond issued in January, which was priced with a spread of 1.48%.
Some recent bond issues have been more expensive than usual, with some suggesting that the uncertainty around Brexit has caused investors to be more cautious.
This uncertainty, however, has had more of an effect on housing associations in London and the South East, where house prices have been much more volatile.
Geraldine Howley, chief executive of Incommunities, said: “As a profit-for-purpose business we are pleased to have secured this funding, which will allow us to both invest in and act as a catalyst for other investment in homes, people and communities in the North.”
Incommunities received a relatively high A+ credit rating last week from ratings agency Standard & Poor’s.
Adrian Bell, head of social housing at JCRA, which advised on the bond, said: “This represented the final stage of a major debt restructuring process designed to reduce interest costs, enhance the credit and extend the maturity of Incommunities’ loans.
“It was a complex process involving the need to obtain a rating conditional on the restructuring, co-ordinate the sale of the bond with the restructuring and renegotiation of the bank debt, and manage the cancellation of a large swap portfolio to coincide with the bond pricing.”
