Japanese bank passes £0.5bn in housing deals

MUFG acted as mandated lead arranger, private placement note arranger and agent.

 

Sanjay Narbheram, director of housing finance at MUFG, said the arrangement follows similar work by the bank in other areas of project finance. He said the structure mitigated potential refinancing risk, with the cost of funds agreed at today’s rates. The £50m is to be repaid in two £25m instalments after years 32 and 34. He added they are now having conversations with other associations about further capital markets deals.

 

Barry Nethercott, executive director of finance and deputy chief executive for Network Homes - which has more than 20,000 properties - said MUFG ‘has shown a good understanding of Network’s funding requirements and has provided an innovative solution’.

 

He said the structure provides short-term debt to sustain the development plan while meeting Network’s liquidity policy of 18 months forward funding, helping to hedge against market risk.

 

It also means having the liquidity available while not taking on the whole carry cost of carry as the price is agreed ‘on day one’.

 

Security substitution is ‘no more onerous’ than typical security arrangements. It also includes up to 35 per cent shared ownership, which is higher than typical for banks.

 

He said it not only gives Network a route into the debt capital markets, but also offers a new structure that can be used with other investors.

 

Mr Nethercott added it was also done at a lower price than the English sector’s latest own name bond, issued by Hyde at a 3 per cent coupon.

 

Jon-Paul Phillips, portfolio manager at BAE Systems Pension Funds Investment Management, added that the transaction ‘reflects the innovative and flexible way we aim to support the sector’.

 

MUFG’s progress

 

MUFG’s first deal in the sector was £75m to Anchor Trust as part of a £265m syndicated loan facility.

 

It now expects another four transactions to conclude in the next two months, taking the book to over £850m.

 

Mr Narbheram - who previously worked for the Homes and Communities Agency and Lloyds Bank - said competition remains strong in the lender market, with examples of 12 banks submitting terms for the same deal. Along with establishing new relationships, he said MUFG has benefited from sector mergers and the fallout from other lenders’ concentration risk.

 

MUFG’s RCFs range from £35m to £75m, with maturities of between two and 10 years. While mainly looking to larger southern HAs, they may go outside of that on a’ case-by-case’ basis.

 

Robert Bartlett, executive director for infrastructure at MUFG, said: ‘We are still focused on the size of the HA, and on a number of financial parameters… and we do look to the group entity which is predominantly [generating] cashflows from social housing rents.’

 

But he added: ‘Now we’re really looking at where we can bring innovation to the sector. To showcase Network Homes [for example], it’s the right structure and right product and we want to see whether we can roll this out with targeted clients.’

 

He said there is still a need for RCFs to help with development programmes - but there are cases where a different product is will meet the ‘life expectancy’ of the asset.

 

A move into DCM does not signal a shift of focus away from balance sheet to private or public bond investors, Mr Bartlett added:.

 

‘What we’re trying to say is that we have our balance sheet available to the sector but we are trying to use that in the right way… for housing supply and development, while allowing the HA to find long-term funding solutions once they’ve gone through the development programme.’

 

He added: ‘We continue to explore opportunities for institutional investment into the sector from US and Japanese investors. Our current focus is around identifying sterling liquidity for these type of assets.’

 

Mr Narbheram said MUFG has relationships with ‘quite a large number of institutional investors’, who are engaged with the sector.

 

‘Through these relationships [we have] an understanding of the flexibility of what they can bring to the deal and what their criteria is.’

 

He said this is controlled through the loan documents, such as on-lending, guarantees and investment clauses.

 

‘We want to build up long-term relationships and look to work with clients over time in areas that can help them,’ added Mr Bartlett.