Accent achieves UK social housing’s lowest ever coupon for a long-dated bond

Investors included some European funders, along with the usual sterling pension funds and insurance houses.

The demand follows investor concerns over housing associations’ exposure to development and particularly the London sales market, as well as debate over the appetite for long-dated housing association bonds with bullet repayments.

Accent went to the capital markets shortly after major corporates including M&S and BMW, both of which were oversubscribed.

The housing association’s funding will be used to repay £122m of legacy bank debt, which sees it part ways with Nationwide.

It will also support Accent’s development programme in which it aims to deliver around 2,000 new, affordable homes over the next five years. The group completed 78 new homes in 2019.

The remainder will be invested in existing homes and services.

The deal came after Standard & Poor’s assigned Accent Capital – the group treasury vehicle that issued the bonds – an A+ long-term issuer credit rating on 4 July 2019, with a negative outlook, reflecting the sector’s exposure to the UK’s sovereign rating.

It highlighted the group’s strong financial profile, supported by “robust liquidity and modest leverage despite an ambitious development plan”, along with an operational footprint across 68 local authority areas in the North, East, and South of England.

Despite plans to increase its shared ownership and sales activity, its core remains low-income social housing activities, with social rent representing around 52 per cent of market.

Barclays, Lloyds Bank Corporate Markets and NatWest Markets were bookrunners on the deal, supported by Allen & Overy for legal advice.

Centrus is the group’s retained treasury advisor.

Accent’s legal advisor on the transaction was Trowers & Hamlins. Funders’ valuation was done by Savills with Wright Hassall acting as security legal advisors.

Timing

The record coupon resulted from a combination of low gilt yields and the tightest spread seen in the sector on a public bond since October 2017, when London-based Catalyst issued at 130 bps.

Timing was therefore an important factor, with Mr Dolan saying the team had “pushed incredibly hard to hit the timescale”.

Accent recently completed an in-depth assessment by the social housing regulator, but was also among the first two housing associations to publish their 2019 audited accounts, reporting a £52.8m pre-tax surplus for the year.

Mr Royston said the advice was that having the 2019 results ready “would be a strong message” to investors. Some funders have previously called for a quicker turnaround of annual results by housing associations, including at Social Housing conferences.

While the bond was driven by corporate objectives rather than plans to mitigate Brexit impacts, going to the market in July also meant that Accent put some distance between its issuance and the bonds deals in the earlier part of the year in the run up to the UK’s original March exit plan.

It also beats the summer slowdown and a run in to any proposed exit in October and prospect of a general election, with Mr Dolan describing the date as a “sweet spot”.

Mr Royston added: “I think the Brexit delay and political uncertainty helped push the gilt rate down. In terms of the spread, it’s more about the strength of our story.”

Investors liked the clarity and simplicity of the business, which has come after a ‘comprehensive reboot’ and financial restructuring.

They also liked the geographical diversity of the organisation, meaning it is not concentrated in any single housing market, and the fact that Accent is not exposed to the London sales market, which has been raised as a concern by investors over the past 12 months.

The group now operates across five regional units across the North, East and South of the country.

Accent is also less exposed in terms of the scale of its development programme, despite it representing a significant uplift from its current position.