Third housing association launches sustainability bond, at gilts +87bps

News07 May 2021James Wilmore

PA Housing has raised £400m through the capital markets in its first issuance linked to sustainability, as it seeks to capitalise on the trend for investor appetite around the agenda.

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The 15-year issuance is only the fourth ‘sustainability’ bond in the sector to date, and makes PA the third association to adopt the approach, following two bonds by Clarion last year, and one by Aster in January.

The landlord, which operates 23,000 homes across the East Midlands, London and Surrey, saw the bond priced at 87 basis points over gilts with a coupon of two per cent, and an all-in cost of 2.026 per cent. Of the total issued on 29 April, £100m was retained for future use.

The funds were raised through PA’s newly established sustainable finance framework, which is aimed at helping the group access public bonds, private placements, revolving credit facilities and bank loans linked to environmental, social and governance (ESG) principles.

PA, which is currently in talks with Accent Group over a merger, said the funds would be used to improve the energy efficiency of its existing stock and press ahead with plans to build 6,000 new homes by 2030. Currently, 40 per cent of PA’s stock – 10,500 homes – have an EPC rating of ‘D’ or lower.

Matt Thomas, head of UK corporate debt capital markets at Barclays, which acted as a bookrunner on the deal, said: “Investors fully embraced PA Housing’s sustainable finance strategy and recognised and rewarded the leadership shown.”

Simon Hatchman, executive director of resources at PA Housing, said the funds would help make its homes more energy efficient and invest in infrastructure such as electric vehicle charging points and recycling facilities.

In numbers

£400m

Amount raised by PA on capital markets

15 years

Length of issuance

40%

PA’s stock with EPC D or lower

He also said the group’s support of Black, Asian and minority ethnic (BAME) communities helped with the fundraising.

“As a proud BAME housing association, it has been encouraging to see the extent to which our BAME background resonated with investors keen to see broader representation in leadership and board membership,” he said. “This influenced our decisions on the allocation process.”

Kirsty Garrett, a director for Lloyds Bank’s debt capital markets team, which was also a bookrunner on the deal, said that PA Housing’s ESG credentials, “alongside a robust credit story, led to significant demand for the bond, with the orderbook peaking at over £1.2bn.”

She added: “The transaction marks a strong return to the capital markets for PA Housing and positions the organisation well for a future sale of its retained bonds.”

Last month, PA Housing revealed in unaudited figures that its full-year operating surplus had fallen 26 per cent to £40.3m off a revenue of £156.8m. Its plans also took a hit as disruption from the pandemic meant its spending on development was 39 per cent behind budget, at £82.7m, and its capital maintenance was a fifth behind budget, at £3.4m. It comes as the group said in March that it was “exploring partnership opportunities” with 20,700-home Accent.

On the bond issuance, the treasury advisor was Chatham Financial and legal advice was from Devonshires and Addleshaw Goddard. Second-party opinion on ESG was provided by Sustainalytics.