Optivo moves on markets to price 15-year bond at 2.857%

News31 Mar 2020Luke Cross

Optivo has made its move in the bond markets four weeks after completing an initial investor roadshow, pricing a £250m public issue – with £100m retained – at a coupon of 2.857 per cent.

Optivo has issued a 15-year bond (picture: Getty)

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.@optivohomes has made its move in the bond markets four weeks after completing an initial investor roadshow, pricing a 15-year deal #ukhousing

Volatile market conditions push out spread to 230bps on 15-year bond deal, with CFO saying the group has “taken the opportunity to secure long-term funding” #ukhousing

The deal garnered interest from 40 investors across a £1bn book after indicative pricing of 250bps, marking a widening of spreads as gilt yields have tanked amid the unprecedented disruption caused by the coronavirus outbreak.

The 47,000-home London G15 housing association, which operates across the South East and the Midlands, said it was raising the money to support plans to build 15,000 homes over a decade.

Optivo – rated A2 by Moody’s – saw around 25 investors during a roadshow that completed in the first week of March, but said it was taking a “wait and see” approach as it sought the right time to issue, adding that it had no immediate requirement for liquidity.

The housing sector has since halted all new build in response to the coronavirus outbreak, and Optivo has paused its land acquisitions.

However, the bond gives the group available funding headroom of more than £650m and leaves it “in a fantastic place to continue investing in social housing when the time is right”, according to Sarah Smith, Optivo’s chief financial officer.

She said: “We met investors at the start of the month, received good feedback from the analysts, but then the primary bond markets closed in response to COVID-19.

“Since then we’ve been waiting and watching, weighing up our options. While gilt yields have tightened, credit spreads have widened considerably over the last few weeks. And, globally, corporates have been issuing new bonds with considerable concessions to secondary spreads.”

Ms Smith said the group expects to resume building out all its existing sites as soon as it is safe to do so.

“We will kick-start our social housing development programme again as COVID-19 passes. This bond issue puts us in a fantastic place to continue investing in social housing when the time is right, and to make the most of opportunities as they come along.”

HSBC and BNP Paribas were bookrunners on the bond, with advisory services from Addleshaw Goddard and Devonshires, valuations by JLL, and Prudential as security trustee.

Pricing impacts

The transaction marks the first own-name public issuance in the sector since January 2020. It comes days after Fitch downgraded the UK sovereign rating to AA-, citing a significant weakening of the UK’s public finances and a “fiscal loosening stance” caused by the impact of the COVID-19 outbreak.

Optivo’s spread is one of the widest seen on a public issue in the sector since the group’s debut bond as AmicusHorizon in 2012 – before its merger with Viridian – when it raised £150m at 215 basis points (bps).

Its last issue – £250m with £100m retained – was done at a coupon of 3.283 per cent and spread of 140 bps over gilts. The margin on that bond had pushed out to more than 200 bps by last week, according to data collected for Social Housing’s monthly market digest.

In January 2020, Clarion Housing Group raised £350m with its first sustainable bond over 15 years at at 98 bps over gilts and an all-in effective rate of 1.88 per cent.

In October 2019, Sovereign issued a £375m own-name bond – with £125m retained for later sale – at a spread of 127 bps over gilts, marking the tightest spread of the year for a public housing association deal.

Ms Smith said: “If we’d met investors one week earlier we might have priced a whole one per cent cheaper.

“But the world looks and feels very different to how it did a month ago, and given the opportunity to secure long-term funding in this environment, we’ve taken it.”

She added: “Corporates have in recent weeks been paying new issue concessions of 50 bps on average, and as high as 100 bps in some cases, to buy market access. At 30 bps we’ve priced with one of the lowest concessions globally since the crisis started.”

Sector funding

There was a small flurry of social housing deal activity at the start of March 2020 – including retained bond sales by Longhurst and Swan, and a deal by bond aggregator The Housing Finance Corporation – before the coronavirus outbreak caused havoc across the bonds and equities markets.

Housing association capital markets deals have broadly been on hold as providers focus on emergency measures in response to the COVID-19 crisis and amid markets turmoil.

Association credit spreads on long-dated bonds have widened by up to 95 basis points in the month to 24 March 2020, according to the latest available data compiled for Social Housing’s upcoming market digest.

The public bond markets were shut for business for a period in the middle of the month, but the Financial Times reported a rush of corporate bonds activity last week following the latest monetary stimulus by central banks, including bond-buying programmes.

Funding experts told Social Housing that a strategic approach – including a focus on all-in yields – is required “to isolate key issuance windows”.

The latest deal has also came amid calls for the Bank of England to include housing association issuance in a major bond-buying programme, launched as part of a package of emergency measures aimed at stabilising the markets amid the coronavirus crisis.