Optivo issues £250m bond to support plans to build 1,500 homes per year

News09 Mar 2018Luke Cross

Optivo has issued a £250m bond, with £100m retained for future sale, at a coupon of 3.283 per cent and spread of 140 basis points over gilts.

The London G15 housing association, which owns and manages 44,000 homes across the capital, the South East and the Midlands, priced the 30-year bonds over the Treasury 1.5% 2047 gilt yesterday (8 March 2018) after roadshowing to investors this week.

The proceeds from the new bond will pay off a small amount of short-term debt but the majority will flow from the treasury vehicle into the housing association to support Optivo’s ambition to build 1,500 homes per year.

The Optivo leadership team saw 25 investors during its roadshow in London and Edinburgh. HSBC and Barclays acted as arrangers.

A total of 13 investors participated in the issuance, of which 10 were new to Optivo.

Sarah Smith, chief financial officer at Optivo, said the process had gone “extremely well” and offered a “fantastic opportunity to get the [Optivo] name out there”.

The issuance comes a fortnight after L&Q raised £500m in two tranches, including £250m of 35-year priced at 135 bps over gilts, giving a coupon payable at 3.125 per cent.

Moody’s had affirmed Optivo’s A2 rating ahead of the roadshow, which it said is “supported by robust profitability, sufficient interest coverage ratios, and a strong liquidity position”.

Ms Smith said there was particular interest from investors in sector credit ratings, especially from insurance companies that are restricted around what they can invest in due to Insolvency II.

Moody’s downgraded all 40 of its rated housing associations by one notch in September 2017 as a direct response to its action on the UK sovereign, from which associations receive a rating uplift due to expectation of ‘extraordinary’ support and the regulatory framework.

Investors and bankers told Social Housing last autumn that the fall of housing associations into ’bbb’ credit ratings could impact pricing and put some funders off investing altogether.

Ms Smith said that while it was not an issue for Optivo with its A2 rating, the investor focus on the trajectory of ratings is something for the sector to be aware of.

She added that investors were also particularly interested in the development programme and management of sales risk exposure, along with Optivo’s amalgamation progress since the merger of AmicusHorizon and Viridian.

There were some questions about the implications of the Grenfell Tower tragedy, including how many of Optivo’s blocks have aluminium composite material (ACM) cladding.

The group did not put any towers into charge as security against the bond. Ms Smith added that they have a very low amount of ACM cladding on towers.

Optivo already had 12,000 unencumbered units that it could use as security. Asset cover was set at the standard 105% EUV-SH and 115% MV-T.

The money was issued through treasury vehicle, Optivo Finance Plc, with the HA as the borrower. Ms Smith said investors do not stipulate whether the money is used for social or market activity.

Four out of 10 of the homes planned in Optivo’s development programme will be for either outright sale or shared ownership.

Trowers and Hamlins provided legal advice, along with Allen & Overy. JLL conducted valuations. Moody’s said that its rating “takes into account a moderate, but rising level of debt, an expected increase in development activity, and integration risk from the recent merger”.

At the time of merger Optivo inherited £1.16bn of drawn down debt from its legacy housing associations. AmicusHorizon’s previous loan syndicate was disbanded as part of the merger refinancing.

Great Places is planning to tap its existing bond for £145m in the coming days.

There have also been a stream of private placements in recent weeks, including for Watford Community Trust.