Professionals’ league 2024: deals dwindle but value creeps up

HAs and deal size

One of the largest deals over the period was carried out by Places for People, with what it said was the sector’s “biggest ever” bond. The £500m issuance was raised in November 2023 alongside a tender offer for an existing secured bond, which was due to mature in July 2024, and a £150m capped tender offer for a £400m unsecured bond that matures in August 2026.

The bond was issued via the organisation’s sustainable finance framework to refinance debt and generate more funds, attracting 85 investors “despite current macro-economic uncertainties”, it said. The funds are being used to improve the safety and quality of the association’s existing stock and the development of new affordable homes. 

At the time of the deal, Matt Cooper, tax and treasury director at Places for People, said: “In addition to allowing us to refinance conventional bonds with sustainable finance, this issuance will allow us to continue to invest in our existing housing for the well-being of our customers and communities. It will also contribute to delivering 7,000 new affordable homes by 2026, in partnership with Homes England.”

Similar deals were also seen by Sovereign Network Group, which raised £400m in its first bond issuance since its merger in 2023. The funding was raised under its sustainable finance framework, which it said would help support a strategic aim to build 25,000 homes over the next 10 years.

This issuance was also popular, with the HA saying it was “nearly four times oversubscribed”.

That investor appetite is echoed by Beth Collett, a partner at Addleshaw Goddard, which acted as the legal advisor for funders on the highest number deals this year.

She says: “Where a deal has come to market, we have seen investors want to go in for a larger piece of it. So [while there has been] less deal flow and investors are still being selective about which HAs they’ll invest in, where there has been a good credit, we’ve seen large bid amounts.”

Riverside Group issued a £365m private placement during the period, which a Moody’s credit opinion said would be drawn before March 2024 to accelerate the HA’s debt restructuring. Investors in Riverside’s private placement included Phoenix Life, Pacific Life, Just Group, Insight Investment and Nuveen, an American asset manager.

Moat Homes received seven institutional loans from a number of local authorities, as well as the Police and Crime Commissioner for Hampshire and Isle of Wight and the West of England Combined Authority.

Commenting on this, Gloria Yang, executive director of finance at Moat Homes, says: “In 2023, working through an advisor, we secured five-year revolving credit facilities with seven counter parties (six local authorities and one police and crime commissioner) for an aggregated value of £50m on an unsecured basis. These facilities enhance our strong level of liquidity.”

The HA says the £5m loan via the West of England Combined Authority was completed through an intermediary and it is unable to comment on whether it was linked to local authority devolution investments.

Our initial data collection noted a new large Euro Medium-Term Note (EMTN) programme launched by Peabody for £1bn, as well as updates on existing EMTN programmes from L&Q (£2.5bn), Vivid (£2bn) and LiveWest (£1bn). These have not been included in the final tables as they are not bond issues (we report on the bonds issued via the programmes). Still, they are noteworthy, given their timing.

NatWest, which acted as sole arranger on Peabody’s issue, said in a statement at the time that the organisation established the programme to access the capital markets at speed.

“NatWest has supported other housing associations to establish their EMTN programmes over the past couple of years,” it said. “Such programmes have become a popular way for housing associations to enhance their access to the debt capital markets by cutting down preparation time for future bonds. The EMTN programme covers the majority of the upfront work that would otherwise be required for each issuance.”

L&Q’s £2.5bn EMTN programme was set up in 2020. James Howell, director of partnerships at the HA, says it was set up to support L&Q’s issuance in the debt capital markets, with two bonds issued under the EMTN programme to date.

Elsewhere, our data shows that Southern Housing was active in the capital markets over the period, with a number of bond issues ranging between £50m and £150m.

Commenting on Southern Housing’s deal activity, Tom Paul, executive director of strategy and change at the HA, says: “At Southern Housing, we’ve continued to sell long-term debt into the public capital markets, even as interest rates have risen. We’ve used the proceeds to pay down the shorter-term bank lines drawn to fund investment into new social housing. We view this as a defensive move: reducing our refinancing risks, simplifying our treasury portfolio, and keeping a tight grip on our exposure to future interest rate moves.

“Our tactic over the past few years has been to approach the market incrementally as a way to manage market risk during a volatile period, so while 90 per cent of our debts are currently fixed, this reflects a wide range of historic interest rates, and our overall average cost of debt is now among the lowest in the sector.”

He adds: “Our partner banks facilitate this strategy through providing liquidity to support commitment to development schemes, providing the facilities we draw on as those schemes progress, and then supporting us with debt capital markets access to refinance the bank loans. The sale of long-term fixed-rate bonds in the debt capital market is the culmination point of this process.”

Southern Housing also completed a bond buyback for £500m, as did Saxon Weald for £200m, although these have not been included in the overall data figures.

Speaking generally about the drivers for HA buybacks over the period, Rachel Orgill-Harris, a partner at Devonshires, which acted on a number of the deals, says: “Some of those associations concluded they were better off financially buying the bonds back rather than leaving them in place. Some of the bonds were quite asset heavy in terms of security and they didn’t have the best rates, so people took the view in some cases that they were better off buying them back.”

Aggregators

There were 12 deals done via aggregators for the period, which was down slightly on last year from 13. Deal value totalled £536m, which was down 17 per cent from £647.2m.

More than half of the deals were done via the Affordable Homes Guarantee Scheme and ARA Venn. This included more than £250m in bond issuances to four HAs: Nottingham Community Housing Association (£50m), Thirteen Group (£100m), Watford Community Housing (£32.5m) and Yorkshire Housing (£74m).

All of the HAs at the time of the issuance said the funding would be used to fund their housing delivery, including around 700 homes for Thirteen and 380 new mixed-tenure homes for Yorkshire Housing.

Blend Funding, which is a subsidiary of The Housing Finance Corporation, was involved with four deals, including a £25m loan to Ongo Homes for housing development. GB Social Housing had one deal with Shian Housing Association for £5m. No deals via MORhomes were made during the period.

Advisors, arrangers and lawyers

Nine law firms, or a combination of firms, advised across the 39 deals. Addleshaw Goddard comes out top for funders’ lawyers, advising on 18 of the deals (one of these also involved A&L Goodbody). This was followed by Anthony Collins, which advised on eight deals.

Devonshires, meanwhile, advised on the most deals for HAs. It acted as the sole advisor on 18 deals, as well as alongside Arthur Cox, Penningtons Manches Cooper and Browne Jacobson for three deals.

There were 20 deals where a financial or treasury advisor was listed. Centrus accounted for half of those, advising on four bonds and six private placements. It was followed by Newbridge with four deals. Savills Financial Consultants was listed on one private placement.

There were 19 deals with listed arrangers, with Arlingclose accounting for eight of these, which were all institutional loans with local authorities acting as investors.

Future deal flow

While challenges still remain for the sector, the mood generally seemed a lot lighter among those spoken to for this report when discussing expectations for the 12-month period ahead.

Greater economic certainty has meant more detail on investment levels and programmes in business plans for 2024-25 compared with 2023-24, says Mr Morgan at Savills Financial Consultants.

He adds: “The majority of our clients have now got a much firmer view on the data that’s going into the business plan. There have been a huge amount of stock condition surveys going on over the past 18 months. There’s a team in our business that does that [surveying] and they’ve been really, really busy.

“We’re also seeing a lot more information going in [to business cases] around longer-term net zero spend as well. So, people are starting to give that a bit more focus and people are getting a little bit more comfortable about the direction of travel for the market, with the first rate cut [having taken place].”

This is echoed by Devonshires’ Ms Orgill-Harris, who says the new financial year is starting to show some “tentatively encouraging signs”.

She adds: “There’s slightly greater economic stability combined with tighter margins and spreads, and that means some housing associations are starting to think about locking in longer-dated and covenant-light funding. So yes, unfortunately, rates have changed from what they were a few years ago, but I think we’re seeing signs that housing associations are starting to embrace the new norm.”

Auditors

As part of this report, Social Housing has also analysed the 2022-23 financial accounts of registered providers in England, Wales and Scotland, including the largest for-profit organisations, to find the total amount paid to auditors by associations with a bill of £100,000 or more.

A total of £19.9m was paid in fees by HAs for the period, which was up 24.5 per cent. This was made up of £18m in external audit fees and £1.9m in other services, such as tax advice. 

As with previous reports, BDO had the most clients (27), with a total of £6.6m in fees, which was up nearly 16 per cent. These were made up of £6m in audit fees and £0.6m in other services, the latter of which was down nearly 25 per cent.

KPMG followed with a total of 23 clients, although its fees were higher at £7.8m. Its other services of £0.68m were also down 35 per cent. Beever and Struthers followed with nine clients and total fees of £1.2m.

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