New housing association aggregator launches £2bn note programme

Blend Funding, a 100 per cent subsidiary of non-profit THFC, was set up earlier this year as a new housing association aggregator, albeit with a number of different features to its parent, which has been operating in the sector for more than three decades.

Blend’s board is made up mainly of THFC executives and non-executives, including the likes of Piers Williamson, Fenella Edge, Keith Exford, Will Perry and Ian Peacock.

Moody’s said the rating reflects the strong credit quality of the underlying pool participants; the structural enhancement of a sufficiently sized liquidity reserve within the pool mechanism; start-up risk being mitigated by the strong market experience of the issuer’s management team; and concentration risk related to the very small pool.

It said the credit quality of the EMTN programme is enhanced by a liquidity reserve held in trust by Blend, which would meet 12 months of interest payments for each borrower. It added there is “no provision to enforce replenishment of any depletion in an individual borrower’s liquidity reserve by any other borrower, also known as a ‘step-up’ provision”.

Moody’s also cited the “strong market experience” of the management team. It said Blend will be governed by substantially the same board as THFC, and will be managed by THFC Services, a 100 per cent owned subsidiary which provides management services for the group’s other programmes.

The agency added: “THFC has considerable experience in the provision of finance to the housing association sector. It was established 31 years ago and currently provides finance to 145 separate housing association groups, and, amongst other programmes, runs the Affordable Housing Finance scheme as the exclusive delivery party of the UK government-backed Affordable Housing Guarantee [Programme].

“Moody’s considers that the strong experience of the management team partially offsets the start-up risk of the entity, which will also have limited reserves as the predominant source of income will be the arrangement fee and annual management fee to borrowers.”

The ratings agency also noted a stable operating environment for housing associations as well as more positive policy announcements around rent increases from 2020 and new capital grant availability “reversing previous adverse policies in England”.

in addition, it pointed to “a strong level of extraordinary support, reflecting the wide-ranging powers of redress available to the regulator in cases of financial distress, with the possibility of a facilitated merger or a transfer of engagements”.

The Blend EMTN plan is the latest in a string of note programmes in the sector. Places for People was the first with an unsecured note programme several years ago, followed by the likes of A2Dominion and Clarion Group, which launched a secured medium-term note last year.

Moody’s used its Public Sector Pool Financings methodology, published in July 2012, to assess Blend Funding.

THFC was contacted for comment.