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Aggregator prices long-awaited debut £250m bond
The social housing bond aggregator MORhomes has priced its debut £250m bond issue today for nine housing associations.
It priced the issue at 1.9% more expensive than the cost of the equivalent government borrowing, or gilt, a spread almost twice as large as its initial target.
When it launched last year, the aggregator said it was aiming to borrow money at only a 1% spread over gilt.
The overall interest rate on the bond, which has been issued over a 19-year period, was 3.476% and funds will be transferred to the nine housing associations on 19 February.
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Neil Hadden, chair of MORhomes, said today: “After two years’ hard work by MORhomes, its advisors and its inaugural group of borrowers I am thrilled to see this project come to fruition.
“It shows that the sector continues to innovate in finding new ways to access the funding to support the development of new homes.”
A2Dominion, Aster, EMH, Hafod, Local Space, Melin Homes, Heart of Medway, Pobl and South Yorkshire Housing Association were the nine associations to borrow money.
The number of expected borrowers was originally 11 as Pobl and Aster have both been formed from pairs of housing associations initially on the list.
MORhomes achieved a higher spread than Futures Housing Group, which secured £200m from the bond market last week, priced at 1.68% more expensive than the cost of equivalent government borrowing.
Josie Parsons, finance director at Local Space, which borrowed £50m of the money, told Inside Housing: “The deal has come out with a pricing that is as good as or better than we could get by other means, so that’s good.
“But also, we’re doing something for the sector that brings a different option to people in the sector. It’s a really good thing to be part of and we wanted, if at all possible, to be part of it.”
The process from launching the bond on 11 January to pricing it on 12 February was unusually long, with the aggregator and its members remaining tight-lipped throughout the process.
Ms Parsons said: “They didn’t pin themselves to a particular timeline and they were waiting for the markets to be in the right condition. Markets opened a bit oddly this year and they were waiting for the right time.”
Jargon buster: bonds and tap issues
Bond: Bonds are essentially tradable IOUs issued by companies, governments, housing associations, or others, in order to borrow money on the capital markets.
The ‘coupon’ on a bond is the interest rate that the issuer pays annually on the face value of the bond.
Gilt: The price the government pays for its borrowing.
The spread over gilts is the cost the borrower pays over and above what the government is currently paying.
The cost of government borrowing is used as a baseline because it is considered low risk by investors. The spread is often therefore seen as a measure of an organisation's creditworthiness.
All-in: The total cost of the debt to the bond issuer, ie, the interest rate paid.
Tap issues: Used to raise more money on the same terms and conditions as a previously issued bond- but the price may alter.
