Bromford locks in current rates through £100m deferred placement with Legal & General

Proactive approach

Bromford – which operates across the Midlands and the South West – is one of the highest-rated associations in the sector, with an A2 stable rating from Moody’s and an A+ stable rating from Standard & Poor’s. It began conversations with L&G in late April on the back of an existing relationship that started in 2012.

With a funding requirement in 2021 in line with the business plan, Mr Mubeen said Bromford was keen to leverage current market conditions, looking to work specifically with investors that could offer the flexibility.

“We were keeping a very watchful eye on the gilt curve and spreads and were keen to bring new financing in for 2021,” he told Social Housing.

“What we have been very careful to do is bring in new funding at the right time,” he said, adding that the group works with funders that understand Bromford’s story and growth ambitions.

The new deal marks a continued optimisation of the loan book that has taken place alongside bringing two associations – Merlin and Severn Vale – into the group.

Mr Mubeen said the group already has a harmonised covenant suite, which funders are expected to meet.

Mr Bolton, meanwhile, said the investment “matches our extended liabilities and delivers both real economic growth and social value for the UK”.

He said the amortisation means repayments from year 21, which “really helps” from a pensions liability-matching perspective.

Mr Bolton pointed out that a 40-year deal is not very common in the sector, but he said: “The fact that it was Bromford and that they are one of the most highly rated in the country definitely helped us in that regard.”

Following the coronavirus-driven turmoil seen in the financial markets in March, and a pause in HA private market deals, Mr Bolton said that a series of attractive own-name bonds from associations in April showed that investors are “fundamentally comfortable with the sector”.

He added that without the stabilisation seen in in the public markets, it would have been “harder to make the case that this competitive price in Bromford was worth doing”.

There was also a big focus on the social impact of Bromford’s work from the perspective of pension funds and L&G Retirement investments, which played a part in the undisclosed pricing.

He also welcomed Bromford’s early update to the markets on its response to the COVID-19 crisis, including its position on arrears and development.

Development ambitions

Despite the hiatus in development due to the coronavirus pandemic, Bromford continues to target 12,000 affordable homes by 2028, having delivered 2,000 of its target to date.

It remains “in regular dialogue” with Homes England about delivery targets, as one of the agency’s strategic partners.

The group has reopened seven of the nine sites it runs directly, with the last two set to be recommissioned by the end of the month.

The HA has another 61 sites with partners, including Section 106 and third-party developer contracts, which are all live, albeit subject to discussions around delivery times.

Mr Mubeen pointed out the “counter-cyclical nature” of the development plan, due to its focus on affordable homes, but “with the ability to repurpose tenure to respond to market conditions”.

“We delivered over 1,000 new homes in the year ended 31 March 2020 and expect to deliver a significant number of homes this year despite the delays associated with COVID-19.”

Bromford in the funding markets

• February 2020: Bromford agreed its first sustainability-linked loan (SLL) with NatWest, also marking the lender’s first social housing transaction to adopt the model, and the sector’s only SLL to be attached to environmental targets so far.
• December 2019: Bromford raised £90m of new funding through two concurrent transactions – one public and one private – to refinance an existing bank loan with a legacy funder, as it “proactively optimised” its loan book. It sold £50m of secured, 34-year public bonds, with a March 2020 deferred drawdown and an all-in coupon of 2.554 per cent. It also agreed a £40m private placement with an undisclosed investor, with a three-month deferred drawdown.
• August 2019: Bromford agreed a 12-month deferral on a £50m private placement as it looked to capitalise on low gilt rates, achieving an all-in coupon of 2.26 per cent. The deal with an undisclosed sole UK investor had a 14-year maturity with bullet repayment.
• March 2019: Bromford raised £100m from five American investors at a spread of just 135 basis points over gilts, in a deal that brought another two new US funders into UK social housing. The 20-year private placement priced at an all-in coupon of 3.01 per cent.
• August 2018: Bromford priced its first own-name bond at the narrowest spread for long-term money achieved so far in the housing sector in 2018. The 30-year £300m issue was bought by investors at 135 basis points over gilts, giving an all-in cost of 3.25 per cent.