Bond tap raises £125m for two HAs as sector issuance passes £1.2bn in six weeks

News14 May 2020Luke Cross

A funding company set up by social housing bond aggregator The Housing Finance Corporation (THFC) has raised £125m for two housing associations at an all-in cost of 2.25 per cent.

Recent social housing capital markets deals have seen almost £6bn of investor interest (picture: Getty)

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Bond tap raises £125m for two housing associations as #ukhousing issuance passes £1.2bn in six weeks and garners almost £6bn of investor interest #socialhousingfinance

A funding company set up by social housing bond aggregator The Housing Finance Corporation has raised £125m for two housing associations at an all-in cost of 2.25 per cent #ukhousing #socialhousingfinance

Blend tapped its benchmark 28-year bond today (14 May 2020) via its medium-term note programme and was three-times oversubscribed before achieving a spread of 168 basis points (bps) over gilts.

The money will be lent to 30,000-home Wakefield and District Housing (WDH) and 13,000-home Regenda Group, which operates across the North West. The deal marks WDH’s first long-term bond transaction.

The deal also garnered interest from two new overseas investors, according to A2-rated Blend, and takes its transactions past the £0.5bn mark in less than two years.

Ahead of the UK lockdown at the start of March, Blend tapped its bonds for £25m at 140bps over gilts and an all-in yield of 2.26 per cent, on behalf of new borrower Silva Homes, a 7,500-home association based in Berkshire.

Since the end of March – after the debt capital markets sought to reset to the COVID-19 environment – UK social housing has seen about £1.2bn of public deals, with new issuance premia ranging from around 30bps for Optivo’s 15-year deal that led the charge at the end of that month, to the -1bps reported by Blend today.

In mid-April, social housing bond aggregator MORhomes also raised £35m for two associations at an all-in cost of 3.01 per cent.

While Blend’s deal takes the total to more than £1.2bn issued, at three times oversubscribed it also takes the levels of investor interest and orders to a figure approaching £6bn.

Piers Williamson, chief executive of THFC, said housing associations (HAs) are perceived by investors as “a low-risk, long-term investment”.

“It has been noticeable throughout the last seven weeks that investors have noted the defensive qualities of housing associations,” he said.

“We have been able to demonstrate very effectively the concrete steps that HAs are taking to mitigate operational risk as well as development and sales risk. The success of our transactions shows that investors are listening.”

THFC said that its in-house team helped WDH complete the charging of a large portfolio of properties prior to the tap, so that it can access the funds raised immediately.

John Austin, director of finance at WDH, said: “Today’s transaction has been a long time in the works, and it was clearly worth it.

“We’re very pleased to have got through Blend such a low cost of funds, and thanks to the ease of the whole process we will be able to use these funds straight away to support our business model and deliver for our communities.”

Tony Russell, group executive director of resources at Regenda, said: “Our first experience with Blend was smooth and straightforward, but now as a member of the borrower pool we have been able to access the markets with even greater ease, to take advantage of positive conditions in the capital markets and meet our funding needs to further our regeneration strategy.”

Blend made its debut £250m issuance in September 2018, raising 29-year money at 158bps above gilts for Waterloo Housing Group and Fortis Living – which later merged into Platform Housing Group – along with Wales & West.