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Housing associations turn to US investors amid Brexit volatility
Housing associations are looking to raise money through private placements with US investors as the British bond market is hit by Brexit volatility, experts have told Inside Housing.
Issuing bonds on the UK capital markets has become more and more expensive as the stated date of the UK’s departure from the European Union draws closer.
At the same time, social landlords have sought to raise money to fund contingency plans against the possibility that the UK will leave without a deal.
This has resulted, experts have told Inside Housing, in an increased level of interest from housing associations in issuing private placements with US investors.
Large housing association Network Homes exemplified this trend last week, borrowing £175m from North American investors.
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Chris Evans, associate director at Lloyds Bank, told Inside Housing: “We have started to see certain US investors show a pricing advantage through how they value the private placement, compared with UK investors who are predominantly looking at secondary bonds from the sector.”
Stephen Valvona, director of US private placements at Lloyds, added: “The private placement investor base is less focused on day-to-day volatility. In contrast, it is in the public bond market where investors are looking at daily mark-to-market rates. Investors don’t want to buy a deal today at a certain price and then have to mark it wider tomorrow.
“Private placement investors typically have an ability to price through periods of volatility like this. When the public bond markets are volatile, the private placement typically remains active and continues to price transactions.”
The Japanese bank Mitsubishi UFJ Financial Group arranged the Network funding, which had a range of different maturities, from six investors based in the US and Canada.
Commenting on the deal, Barry Nethercott, executive director of finance and governance at Network, said: “The North American markets have been showing keen pricing and excellent flexibility of approach of late and we wanted to take advantage of those conditions to deliver on a number of corporate objectives.”
Howard Webb, director at Link Asset Services, told Inside Housing: “There seems to be [better pricing at the moment from US investors], but the thing about the private placement market is you’re only told what the bookrunners and the borrowers want to tell you.
“You don’t necessarily hear about the deals that struggled or paid higher spreads. There’s also a bit of sleight of hand going on in terms of different maturities being tapped. Most of the public bond issuance are 30 or 40-year funding. A lot of the private placement issuance have shorter terms – 10, 15 years. Of course, the yield is quite a lot cheaper at the shorter end.”
Click here to read more about housing association’s Brexit contingencies
