Southern Housing issues £250m in first bond as merged entity
Southern Housing has issued a £250m 30-year bond in its first issuance since the group was formed via a merger almost two years ago.
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The G15 landlord, which was created via a merger between Optivo and Southern Housing Group in December 2022, revealed that the bond was priced at an all-in cost of funds of 5.676 per cent.
It has a coupon of 5.625 per cent and was sold at 120 basis points (bps) over gilts with a reference gilt of UKT 1.625 per cent.
The bond was issued under Southern’s Sustainable Finance Framework created in June.
The net proceeds from the issue of the notes will be used by the landlord for sustainable purposes and applied in accordance with this framework. DNV Business Assurance Services provided a second-party opinion on the sustainability framework.
The housing association, which manages more than 78,000 homes, said that the funding will be used to manage treasury risks while funding investment in new social housing.
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More than 40 investors were involved in the deal.
The deal has an asset cover covenant and was secured with 2,013 charged properties on a numerical apportionment basis.
Barclays and Lloyds Corporate Markets were the bookrunners and Newbridge Advisors served as Southern’s funding advisor. Devonshires provided the landlord with legal advice while Addleshaw Goddard worked as the funders’ lawyer.
Steve Sharples, director of corporate finance at Southern Housing, said: “This bond issuance is part of our long-term strategy to manage treasury risks while funding investment in new social housing.
“The successful process last week demonstrates the excellent support we have from our investors as we focus on our financial resilience.”
In December 2023, Southern Housing sold a £150m retained bond as the housing association continued to support its capital base a year on from the merger.
In 2023-24, its first full financial year since the merger, the landlord reported a loss before tax of £28m and a surplus of £3m before “fair value movements”.
The provider said that its results have been put under pressure for several reasons. These include a difficult contractor market that has delayed completion of new schemes, impacting anticipated rent and sales income.
Southern Housing added that with a number of contractors going into administration, it has reassessed several schemes, writing off abortive costs and increasing the impairment provision for contractor insolvencies.
The provider also increased resourcing in its frontline teams for compliance, repairs and maintenance and complaints, and created a team to tackle damp and mould.
In August, the Regulator of Social Housing (RSH) upgraded Southern Housing’s governance rating to G1, while giving the landlord a C2 grade under its new consumer regulation regime.
The regulator said it has now removed the regulatory notice issued in November 2021 in relation to rent-setting at legacy organisation Southern Housing Group in respect of some of its fair rent tenancies, after the combined group showed that it has addressed the issues highlighted.
The RSH said that the landlord has provided “sufficient assurance” that it has made the “necessary improvements” to be assessed as a G1 grading.
Update: at 10am, 14.10.24 The article was updated to reflect that the issuance was a not ’sustainability-linked bond’, but rather was issued under Southern Housing’s Sustainable Finance Framework.
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