Orbit issues sector’s largest single-tranche own-name bond

Orbit, which manages more than 40,000 homes, has issued what is understood to be the largest single-tranche bond the sector has seen, at a spread of 160 basis points and all-in cost of 3.46 per cent.

Orbit met around 25 investors during the roadshows for its latest bond, which was priced over the UK Treasury 4.5 per cent 2042 gilt.

Bookrunners and advisors were Natwest Markets, Barclays, HSBC and Lloyds.

Longhurst Group was the last housing association to raise money on the bond market, with a £250m deal at a spread of 148 bps and all-in cost of 3.347 per cent. Its issue followed another Midlands association, Bromford Group, which had a spread of 135 bps on its £300m bond.

Other recent bond issues include £250m by Clarion at 137 bps over gilts in April and £250m by Optivo in March at 3.283 per cent and a spread of 140 bps. L&Q raised £500m in two tranches in February, including £250m of 35-year bonds priced at 135 bps over gilts, giving a coupon payable at 3.125 per cent.

Orbit received orders and issued the bond via its treasury vehicle, Orbit Capital plc.

Joy Baggaley, group finance director at Orbit, said: “We set out to put in place stable, long-term funding to support our development programme and deliver much-needed homes. We were delighted by the strong level of interest from the investor community evidenced by the significant oversubscription in our issue, which meets all our corporate finance and business objectives.”

Orbit, which is rated A2 by Moody’s, sold £50m of retained bonds at an all-in cost of 3.081 per cent in August 2016 at 147 bps over the reference gilt, which was 1.611 per cent at the time. The bonds mature in March 2045.

The deal followed Orbit’s debut £250m bond in March 2015, with the £50m retained for later sale, at a spread of 115 bps over the gilt, all-in cost of 3.61 per cent and a 3.5 per cent coupon.

Moody’s affirmed Orbit’s A2 rating ahead of the issue but changed its outlook to negative from stable to “reflect the credit risk of its plan to increase capital expenditure”.

The ratings agency also assigned a debt rating of (P)A2 to Orbit Capital’s bond.

Orbit’s market sales revenue is forecast to increase to 42 per cent of total turnover by 2020, from 33 per cent last year, making Orbit one of the most exposed to commercial activities among rated housing associations, according to Moody’s.

The legal representatives on the capital market side was Allen & Overy. Trowers & Hamlins was legal representative on the borrower side.

Centrus provided financial advice and Savills provided valuation advice.

Orbit has been contacted for comment.