Jigsaw Homes issues first sustainability bond for £360m, at gilts+157bps

News06 Apr 2022James Twomey

Large housing association Jigsaw Homes has secured a 30-year, £360m sustainability bond, with £100m retained, in a first for the group.

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Large housing association Jigsaw Homes has secured a £360m sustainability bond, with £100m retained, in a first for the group #UKhousing #SocialHousingFinance

The 30-year bond, issued on 27 April, had a coupon rate of 3.375 per cent, and a spread of 157 basis points over gilts.

The all-in cost of funds is 3.497 per cent, while the 2052 reference gilt stands at 3.750 per cent.

The landlord has 35,000 properties across the North West and the East Midlands, with development plans to build 4,000 social and affordable rent homes in the next five years.

Jigsaw was supported through the process by financial advisory firm Savills, and NatWest was the sole sustainability structuring bank and joint bookrunner, with Barclays acting as joint bookrunner.

Hilary Roberts, chief executive of Jigsaw Homes, said: “The level of investor engagement and oversubscription we received reflects our standing as one of the sector’s leading housing groups.

“Investors were attracted to our robust and consistent financial and operational performance, our track record as an established developer with a strong management team and clear commitment to sustainability.

“Jigsaw is now firmly established in the public bond market, which will enable us to deliver more high-quality and energy-efficient homes.”

Jigsaw’s legal advisor on the deal was Trowers & Hamlins, while Addleshaw Goddard acted on behalf of the funders and M&G Trustee Company was security trustee.

In Moody’s’ update, it said: “The proceeds from the proposed sustainability bond of up to GBP350 million issued by Jigsaw Funding plc will be used in accordance with the group’s sustainable finance framework which outlines eligible projects including construction of affordable housing and improving the energy efficiency of existing homes.

“The affirmation of Jigsaw’s A2 issuer rating reflects Jigsaw’s strong financial performance, robust financial management and governance and strong liquidity. It also incorporates the anticipated weakening of Jigsaw’s debt metrics over the next few years.”

Jigsaw Homes has seen a “consistently strong financial performance”, according to Moody’s, which is driven by the high profitability of its core social housing lettings portfolio.

Its overall operating margin was 37 per cent in financial year 2021, higher than the A2-rated peer median of 30 per cent in the same year.

Moody’s said it expects Jigsaw’s operating margin to stay above 30 per cent over the next three years, “benefiting from inflation-linked rent increases, conservative budgeting and its continued focus on social housing lettings”.

Jigsaw has a G2/V2 rating from the Regulator of Social Housing.

The association has limited market sales activity, as it develops only shared ownership units, which represent only around five per cent of its annual turnover.

This continued focus on low-risk activities combined with the strong management of spending underpins Jigsaw’s strong interest coverage ratios, said Moody’s.

The landlord aims to build 800 units per year and the increase in net capital expenditure also includes retrofitting costs as Jigsaw aims to improve its energy efficiency by reaching Energy Performance Certificate Band C on all its homes by 2030 and by reaching net zero carbon for the organisation by 2050.

Despite the anticipated increase in spending, Moody’s said that Jigsaw will maintain strong liquidity coverage thanks to its liquidity policy.

The ratings agency warned that the debt increase will weigh on Jigsaw’s debt and interest metrics over the next two years, with debt to revenue peaking at 4.7x in 2023 from 3.6x in 2021.

However, Moody’s said that Jigsaw’s gearing remains in line with peers owing to the group’s strong balance sheet and ability to secure capital grants.