A new funding frontier: unlocking the European private placement market

Looking to Europe

 

European funders are yet to be charted successfully for UK HAs.

 

Of course, the European Investment Bank (EIB) played a significant role in providing the sector with billions in low-cost, sustainability-driven debt, particularly via the first Affordable Homes Guarantee Scheme.

 

We’ve also seen some direct lending from the EIB in more recent years, but the UK’s departure from the EU broke that momentum and deprioritised the UK as an EIB investment region.

 

Several years ago, a number of larger HAs set up Euro Medium-Term Note (EMTN) programmes, with the likes of Clarion and others saying that their EMTN combined with their ESG credentials had attracted more European interest into their bond issuance. 

 

Places for People went a step further, issuing a 10-year €40m private placement back in 2014, and another €150m in 2019, as part of its funding diversification strategy.

 

But this market remains nascent for social housing, and it is where we see some of the greatest potential, particularly as many issuers might be tempted by ‘going short’ as higher interest rates persist for longer.

 

Engaging investors

 

A recent trip to Amsterdam saw a delegation of UK housing finance leaders sharing the sector’s story, and its strengths, with European private placement funders.

 

That delegation included treasury directors from Guinness, Peabody, Stonewater and Vivid, and featured a dedicated roundtable discussion on UK social housing led by Bromford, the Regulator of Social Housing, Legal & General Investment Management and S&P Global.

 

The roundtable was convened by ABN AMRO, a Dutch bank and relative newcomer to the UK social housing sector, as part of its annual private placement conference.

 

As a leading European private placement bank that has lent in excess of £1.5bn to HAs since 2021, ABN AMRO sees a role for itself in unlocking the gateway to European investment for the UK housing sector.

 

And given the positive feedback the event received, we believe it could be a significant opportunity for UK social housing over the coming years.

 

The European private placement market has seen yearly issuance volumes of around €16bn eq. over the past 10 years, including local issuers and cross-border transactions into core European currencies. 

 

The market offers ample liquidity across the credit curve and supports a full range of tenors (three to >40yrs), with growing capital available to a broad array of sectors.

 

UK social housing offers a uniquely attractive investment opportunity versus that of continental Europe-equivalent sectors and broader real estate assets, owing to its differentiated credit profile and regulatory framework. 

Investors have highlighted interest in financial resilience, robust regulation and government support as well as inherent ‘E’, ‘S’ and ‘G’ characteristics as being highly favourable. 

 

European investors identify a natural sweet spot for investment at a 10-year maturity – providing a neat idle ground between bank debt, which is typically shorter, and the UK bond market, which is consistently expressing its preference to go longer.

 

And a tenor in the region of 10 years can work for HAs, too – providing certainty of funding without refinancing risk over the near term, while ensuring some of our debt at least is not locked in for the longer term during an elevated rate cycle.

 

Lessons from the sector’s approach to the US

 

It’s not just about playing to shorter-dated tenors. The economic cycle can drive arbitrage in rate curves in ways that we don’t always expect or anticipate.

 

Take Bromford’s 2019 US private placement, for example. The ink was barely dry on our (Bromford’s) debut public bond in the UK when we went in search of new funding in North America. 

 

The volume of cash repatriated back onto US soil, under then-president Donald Trump’s MAGA taxation regime, led US investors in search of well-regulated, strong single A credit investment opportunities in essential service sectors across the water. 

 

That roadshow was ultimately successful – delivering private placement pricing inside of the secondary trading levels of our debut bond, which was unprecedented at the time.

 

But it was also challenging as we had to educate investors, many of whom were looking at the sector for the first time, on the nature and nuance of how we are regulated, how policy is established, how the rent settlement is driven and how it impacts our longer-term business plans – while asking for their investment at the same time. 

 

Shaping tomorrow’s market

 

HAs will continue to rely on the UK and US markets with established investor accounts. But, as we look to the future, at various points of the economic cycle and changes to cross-currency dynamics, the terms and cost of European funding structures may become more attractive than the established UK or US markets.

 

When that happens, treasury teams should be ready to move at pace to leverage those opportunities with well-established relationships rather than telling their story for the first time in the hope that something lands.

 

And of course, access to potentially more favourable terms in a new market should ensure that we continue to receive the most competitive offers from UK and US markets as well.

 

That is why, with European investors, we want to lay the groundwork now in terms of building relationships and educating investors so that we can build and shape a market that can support the future funding needs of the sector. 

 

We look forward to further investor engagement in Europe over the coming months.

 

After all, what happens outside the deal cycle determines the level of success of the next deal.

 

Imran Mubeen, director of treasury at Bromford, and Rutilio Merién, UK head of real estate, ABN AMRO Bank