Sovereign sells retained bonds at ‘record’ all-in cost as demand for HA issuance passes £5bn

News04 May 2020Luke Cross

Sovereign Housing Association has sold £125m of retained bonds at an all-in cost of 1.974 per cent in what it says marks a record-breaking pricing for a deal of its kind.

Housing associations have attracted more than £5bn of orders for bonds in the past month (picture: Getty)

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.@SovereignHA sells retained bonds at “record” all-in cost as demand for housing association issuance passes £5bn for five deals in past month #socialhousingfinance #ukhousing

The 60,000-home provider priced its deal on Friday 24 April following a one-day process to “better manage potential market volatility”.

It follows Sovereign’s original issuance in October 2019 at an all-in cost of 2.475 per cent and 127 basis points (bps), which at the time represented the tightest spread seen for a long-dated, public own-name housing association (HA) bond.

Despite gilt yields dropping and massive market volatility amid the COVID-19 pandemic, Sovereign attracted £800m of orders when priced, a few days before Together Housing, which tapped its bond on Wednesday last week (29 April).

Both large associations follow The Guinness Partnership, Sanctuary Group and Optivo into the public bond markets, taking the total issuance by HAs to £1.225bn in the space of a month, inclusive of retained bonds.

The level of orders from investors across all the HA bonds is well beyond the £5bn mark, demonstrating significant appetite for social housing paper.

Pricing has varied from 230bps in March as the markets reopened, to the 135bps achieved by Sovereign, albeit for transactions with differing characteristics such as maturity and whether they are new issues, retained sales or taps.

Sovereign attracted more than 20 buyers of its bonds, which were retained for later sale following its £375m, 29-year deal at a 2.375 per cent coupon in October.

Santander and Barclays were its bookrunners for the latest transaction.

The South of England association said the deal further improves its liquidity position, enabling it to invest in the quality of its homes and services while restarting development of sites in the post-coronavirus recovery period.

Tracey Barnes, chief financial officer at Sovereign, said: “We saw very good demand from all of the key UK real money accounts, amassing a high-quality order book with a number of triple-digit orders.

“We priced at a final re-offer yield of 1.974 per cent – the first ever sub-two per cent yield for a 20-year-plus issuance in the sector.

“Throughout this crisis we have tried to maintain a steady and reliable presence for our residents, continuing essential services and pledging that no one would be made homeless due to the effects of coronavirus.”

Sovereign has also launched a £150,000 community support fund and has implemented regular welfare check phone calls to vulnerable people.

“Despite these turbulent economic times, this confidence from investors really confirms Sovereign’s standing and financial strength, and means that we are ready to hit the ground running as soon as normal business operations resume.”

Matt Thomas, head of UK corporate debt capital markets at Barclays, said: “The strong demand for this transaction is demonstrative of the strength of the Sovereign business and its leading reputation among the sterling investor base as well as investor support for the sector as a whole.”

Sovereign’s deal was done over the UKT 1.5 per cent due 22 July 2047 gilt, with standard asset cover levels of 105 per cent EUV-SH and 115 per cent MV-T.

Trowers & Hamlins and Pinsent Masons were legal advisors for Sovereign and the funders, with JLL conducting valuations.