Latest private deals see PfP issuance approach £230m since January, as it primes group structure for growth

Private deals

 

Final bond terms published by the group’s funding vehicle, Places for People Treasury, last month show that £75m of 5.750 per cent 32-year notes were issued on 11 May through the group’s EMTN programme. Then in further transactions on 18 May, £50m of 5.624 per cent 10-year notes and €25m (£21.7m) of 3.750 per cent six-year notes were issued. 

 

Mr Cooper said the deals were driven by the need to maintain a “strong balance sheet” to fund group activities, including development, despite the “challenging times” the business faces, along with others in the sector.

 

“We’re still delivering new homes, obviously spending money on repairs and maintenance and refurbs, and the whole retrofit agenda. So even though the cost of debt has increased, we’ve factored that into the business plan. And we’re in a position that, if there are opportunities to fund, it makes sense to do so.”

 

Although using public documentation through the EMTN programme – which, along with their unsecured nature, made the deals “quick to transact”, Mr Cooper said – each deal was agreed privately with a single investor. These arose via reverse enquiries to the group’s banking partners. 

 

“There’s obviously a lot of volatility in the markets, and part of our approach at the minute is looking at smaller private placement opportunities, [where] there’s less market risk than going out and doing a public bond,” he said. “But there is a lot of interest out there from investors. And we’re keen to tap into that.” 

 

While remaining mindful of the maturity horizons for the group’s existing debt, the different tenors on the transactions were driven by the appetite of specific investors.

 

“We obviously look at what debt we have maturing in the future. But we try and be quite flexible on maturities, rather than going out and saying we want to do a 10-year or 30-year [deal]. It sort of depends on what the pricing is and where the investors are and how that how works. 

 

“The three [recent deals] were very different tenors, and that was driven from an investor perspective, but also from our side that worked pretty well.”

 

Mr Cooper added that the group continued to look at new opportunities: “Some we pass, some we defer, and there’s still a few that we’re looking at.”

 

The pricing and the identity of the investors were undisclosed. 

 

Asked about the current strength of investor demand amid challenges social housing faces – including the macroeconomic backdrop and the continued media focus on the quality of some homes in the sector – Mr Cooper remained positive.

 

“I think that the appetite is there. The challenging bit at the minute is just quite knowing where the pricing is, and how that works. 

 

“Underlying spreads have been fairly stable in coming in; there’s obviously a lot more market risk around where gilt yields are, [for example], but the appetite seems to be there from investors. 

 

“There haven’t been any public deals in the sector, but I think that’s more the fact that the sector isn’t out there looking to raise money, and [down] to volatility, rather than that the investor demand isn’t there.”

 

Mr Cooper was speaking to Social Housing just days before Aster became the first association in some months to issue new bonds publicly, with £250m of 9.5-year issuance, priced at 110 basis points over gilts.

 

Foreign currency deals

 

Earlier in the year, on 25 January, Places for People issued HKD811m of 4.665 per cent, 10-year bonds worth around £84m at the time of the transaction, also arranged privately. 

 

The HKD and euro transactions are by no means the group’s first non-sterling transactions, having previously completed deals dating back several years in both currencies, as well as in yen, US dollars and Australian dollars. 

 

Through these transactions, a cross-currency interest rate swap is agreed on the same day back into sterling, Mr Cooper said when asked about how Places for People manages the risk of transacting in overseas markets. 

 

“There is then volatility depending on the structure of that swap, if we have to post cash over time, or if we don’t. So we try and sort of diversify, and we don’t do too much in one currency, and [we] spread that risk around the different banks. 

 

“I think it is a factor to play when we do the transaction, but you can quite easily manage that. There can be less volatility in those than some of the interest rate swaps we’ve seen just in sterling, really. So it’s something that you need to do a bit of work on [and be] mindful of the risk.”

Simplification and syndication

 

The latest deals come after Places for People completed a group simplification in March, relating to subsidiaries previously acquired through merger activity. Chorus Homes Group Limited transferred its engagements into Chorus Homes Limited, which in turn transferred into (registered provider) PfP Living+ along with Cotman and Derwent. 

 

The associations initially joined as subsidiaries, but the restructuring means the group now owns just one English charitable association, one English non-charitable association, and one Scottish association. 

 

Places for People also last year refreshed its RCFs in a major £900m deal to create a new syndicated RCF with eight banks, with sustainability linkages. This set out to replace previous bilateral facilities and to achieve the kind of banking structure more commonly seen in corporates. 

 

Four banks committed £150m each into the facility, and the other four £75m each.

 

Three core environmental, social and governance (ESG) KPIs will see the group receiving up to a five basis point discount or penalty on the interest rate it pays, depending on whether it meets all, none or some of its agreed targets. 

 

The deal is fully unsecured, in line with Places for People’s strategy, and also brought a new bank into the group’s portfolio while another lender left.  

 

The syndicate comprises Barclays, Bank of China, BNP Paribas, HSBC, Lloyds, National Australia Bank, Natwest and MUFG.

 

Mr Cooper said: “We’ve been keen to bring new banks in to PfP, and we’ve been doing that over the last four or five years on a bilateral basis.”

 

Places for People got to a position of having nine bilateral facilities, totalling £825m, but with an intention to turn these into one single unsecured facility at some point in the future. 

 

“Some of the existing older positions that we had with more of the high street banks were sort of part secured, part unsecured, and one was fully secured. And moving those bilaterally was quite a challenge, but moving them all in one go, over to the same place was a lot easier. 

 

Details of the new covenants were not disclosed but these are understood not to involve EBITDA MRI interest cover, something that Mr Cooper said the group “never really caught onto in the first place”.

 

“Although [the terms on the previous facilities] were all similar, the covenants were slightly different given they were done on a bilateral basis. So this meant that everyone is on the same terms.”

 

Likewise, Places for People had been reluctant to agree nine sets of sustainability metrics on each of its different bilateral facilities and found it had “nearly 30 ESG metrics to monitor”, Mr Cooper said, but it had always intended to apply linkages on to its syndicated facility. 

 

The result is three core ESG metrics shared across the facility, which he said were driven by the existing strategy of the business, rather than something imposed by treasury. 

 

“One of those was around the SAP ratings of properties, on the environmental side. And then we were also keen to also have some more social ones. So we have one around increasing the number of new apprentices, and also one around support for employment and training.”

 

Future growth

 

Together with this new syndicated facility, the recent ‘tidy up’ of the group structure creates a clean canvas in support of Places for People’s well publicised appetite to grow further through partnership.

 

“We’ve been successful in the past with the recent mergers we’ve done [with Derwent and Chorus], and I think we have seen that there’s a bit more activity in the sector,” Mr Cooper said. “We’re keen to talk to others, whether that’s on a pure merger basis or as more collaboration with other associations in our discussions. 

 

“There are some things that we could probably talk to other associations about and other things that we could learn from others, so we’re keen to open those channels.”

 

The group is currently weighing up some opportunities, he said. “Let’s see how that plays out, but it would be good to be part of that [sector consolidation]. I think that there’s real benefits for communities and customers in going through that process and the sort of economies of scale and the efficiencies that we can drive. And then we can obviously play all of that back into the community.”

 

Places for People is also keen to continue to drive growth through the delivery of new homes. The group was awarded £250m in Homes England grant funding in September 2021, to build 4,400 homes under the 2021-26 Affordable Homes Programme. 

 

This was one of the largest allocations in the sector and was an increase from the £74m it received under its previous strategic partnership in 2018-19. In its 2022 annual results, the group said it plans to accelerate the delivery of 10,000 “mixed tenure” homes over the next 10 years.

 

Mr Cooper said: “Obviously you need to be cognisant of the backdrop and sort of be a bit more cautious, but we’re not pulling back on new development; we’ve got the Homes England strategic partnership, we’re delivering on that.”

 

He added: “We do know that others have taken a different view and sort of stopped development completely, which is fine – associations make their own decisions. But from our perspective, we’re in a position that we can continue, and we’re keen to do that rather than stop-start, especially given the backdrop and the demand that’s out there. If we can keep delivering new homes, then we should be doing that, because that’s part of our purpose.”