Your Housing enters capital markets with £120m deal as it completes treasury restructure
Your Housing Group has made its debut in the capital markets with two private placements at sub 2.5 per cent, bolstering liquidity with £120m of funding and cementing a broader restructure of treasury arrangements to support a 10-year growth strategy.
Your Housing has secured £120m of institutional investment (picture: Getty)
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The 28,000-home, Warrington-based association – which operates across the North West, Yorkshire and the Midlands – raised the institutional debt via two notes from UK investors, comprising four maturities and with a weighted average life of around 34 years.
The two-tranche funding was completed during the COVID-19 crisis, closing before Easter and then on Tuesday last week (12 May), with a blended price of around 2.5 per cent, and “an attractive covenant package” despite volatile market conditions.
It compares with a flurry of housing association funding deals in the public markets since the end of March, which have priced between 1.97 per cent and 2.85 per cent for long-dated funding.
Your Housing Group’s (YHG) deal also follows a loan restructure in December 2019 that established a 10-year, £250m revolving credit facility (RCF) across three core banks – including one new bank – while removing EBITDA MRI-based interest cover covenants and providing extra liquidity.
YHG said the funding arrangements underpin a 10-year strategy to invest in existing assets and unlock development of more than 10,000 new homes across a range of rent tenures.
Jeremy Earnshaw, chief financial officer at YHG, said: “The completion of these new facilities is an important milestone for Your Housing Group.
“We have a clear strategy to both invest in our existing assets, and develop at scale to deliver new homes.
"Delivering on our treasury strategy in these highly uncertain times has been a real achievement for Your Housing Group, and we are looking forward to implementing the next stage of our plans.”
Along with recent markets volatility, the investment was completed after YHG saw its top G1 rating downgraded to compliant G2 in relation to the way it was reporting its strategy to board.
Centrus advised on the treasury strategy development and implementation, and arranged the private placements. Devonshires advised on the corporate and financing aspects, including the property security elements, which will underpin the new financing arrangements.
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Corporate journey
The latest funding follows a corporate restructure and a £450m refinancing in 2017, when YHG collapsed the group and saw two registered providers leave the organisation.
At the start of the last financial year, YHG had total borrowings of £360.8m, with a further £162.8m available, mainly in RCFs. It reported that £170m of RCFs were maturing in 2022, and that it was working with its treasury advisors “to develop a plan to refinance the business and spread the loan maturity dates so we don’t have such cliff-edges in future”.
Mr Earnshaw told Social Housing that the removal of EBITDA MRI on £250m of loans in December was “not necessarily a standard request of the lenders, but went well”.
He said that while the covenant is “very sensible”, its removal offers more flexibility and enables a simultaneous investment in existing homes alongside new build.
“We wanted to make sure we had the flexibility to invest in existing assets as well as the development programme.”
He added: “It gives us a lot of liquidity, and bolsters our opportunity to develop and progress repairs without that covenant.”
Market volatility
Investors in the latest deal did take a pause as the COVID-19 crisis escalated, and they assessed the markets.
Following a flurry of US private placements in UK social housing last year, the team also spoke to American investors during the process, with “some more knowledgeable [about the sector] than others”.
But Mr Earnshaw said there was “very little” difference in the deal pre and post-coronavirus, adding that they went with “the two lenders who made the running from the word ‘go’”.
He added that the timing of the regulatory downgrade – the month after the roadshows – did not impact the deal.
The downgrade came amid concerns about the board’s ability to measure performance due to what the Regulator of Social Housing said was a lack of clarity about YHG’s strategy, material shifts in plans and a number of abortive projects.
The CFO said: “That did not cause anything other than saying this is where we are, and this has happened. It’s been a relatively straightforward process.”
Overall, he said he was “pretty pleased” with the outcome of the placement and the pricing, considering the volatile backdrop and it being the first time YHG has been out to the capital markets.
YHG has also since updated investors on its COVID-19 response related to repairs, income levels, voids and support for residents.
Growth plans
As part of its plan to deliver 10,000 homes, YHG has strategic partnership status with Homes England, with grant funding of £87m – along with £9m of recycled capital grant fund – to deliver 2,315 new build affordable homes.
Conversations about the impact of the coronavirus-driven construction hiatus are ongoing with Homes England.
YHG has also mooted a new ‘Affordable Housebuilding Equity and Innovation Fund’ to provide a vehicle for pension funds to invest equity in affordable housing.
It said in its latest accounts that it also continues to explore modern methods of construction, but that “initial explorations are proving to be cost prohibitive on a project-by-project basis”.
In 2018, it parted ways with joint venture partner Welink, with which it was hoping to deliver 25,000 homes per year delivered through modern methods of construction.
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