Herefordshire Housing refi’s Barclays debt with 35-year secured bond through capital markets

Herefordshire Housing Limited (HHL) has refinanced a restrictive Barclays Bank bilateral loan with a £85m tranche of a total £120m secured bond pricing on Friday lifting a restriction on raising additional capital for new housing developments.

TradeRisks logoHHL, a UK housing association with around 8,000 units under management in one local authority in the West Midlands in England, issued the bond through Herefordshire Capital, a wholly-owned subsidiary.  TradeRisks acted as arranger and dealer on the issue

The 35-year dated listed bonds, which will amortise over the last five years and are rated A2 by Moody’s Investor Services, are priced at a blended credit spread of 138 basis points above the yield on the benchmark gilt. 

HHL’s capital markets new issuance provides £85m on day one which will be used to repay a £55m Barclays facility and a circa £13m mark-to-market swap liability on the legacy loan which still has around 11 years to run to maturity.

Around £15m of the initial drawdown has been separately earmarked to finance HHL’s development programme over the next two to three years, including regeneration schemes in Hereford.  In addition, HHL has retained a further £35m retained bonds to sell to investors in the future.

HLL’s primary motivation for refinancing the Barclays loan was to secure a covenant light longer term financing which was more economically viable through a capital markets issuance than a restructuring of the existing bilateral bank facility.

The listed bond was placed with several investors following a competitive funding process. Asset cover is market standard 105% on an existing use value for social housing (EUV-SH) and 115% market value subject to tenancies. Interest cover is at a portfolio level based on the charged properties, rather than at a corporate level.

Herefordshire Housing is one of the newest stock transfers to enter the capital markets.

Richard Woolley, HHL’s director of resources, said: “Our first issuance in the capital markets has enabled us to exit restrictive LSVT style bank loans, and raise funding for additional development that would not have been possible under our old funding arrangements.

“We are delighted with the outcome and the ability to continue developing and investing in communities in Herefordshire and surrounding areas.”

Allen & Overy as the capital market lawyers. HHL was supported by Trowers and Hamlins LLP as legal advisors.

Jon Slater, Joint Chief Executive of TradeRisks, said: “A private but competitive funding process, using public listed documentation, has enabled HHL to borrow at attractive levels, particularly given the recent widening of spreads, and to secure a flexible borrowing structure without restrictive bank covenants.”

TradeRisks has acted as an arranger on a string of capital market financings this year including a 50-year dated £210m bond financing to support Campus Living Villages and Arlington Investors’ purchase of eight student accommodation sites for £245m from PwC as administrator of the former Opal portfolio in March.

In May, TradeRisks arranged a 30-year maturity £300m of deferred bonds to support development programme of housing group, Radian. In June, TradeRisks arranged a 31-year maturity £80m bond for Town and Country Housing to support their growth plans.

HHL is increasing its development programme in its five-year business plan through to the end of 2019, with forecasts to complete approximately 80 social housing units per annum from FY2015 with gross capex spend of £32m during 2015 to 2019, according to a Moody’s credit opinion.  

“Although plans are modest relative to rated peers, this scale is new for HHL and does introduce risk to the organisation,” Moody’s reported.

A large portion of the development programme – 149 of 395 units – is comprised of a single regeneration project of its own units at a site called The Oval.  Work on The Oval site began in March 2014 and is scheduled to complete in FY2018.

In a separate deal, Christian Action Housing Association, based in Enfield, has borrowed £50m from M&G Investments in a 30-year dated private placement enabling Christian Action to repay debt and fulfil its long-term development ambitions.

About CoStar News

Finance Editor, CoStar News
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