Genesis HG issues £250m bond in speedy deal
Genesis HG has successfully issued a £250 million, 30-year bond priced at 170 basis points above the gilt.
The issue, priced at 6.064 per cent, was over-subscribed.
The deal was done in just 10 weeks, and Lloyds Banking Group acted as the book-runner.
The funds will be used to re-pay £95 million-worth of borrowings from Lloyds Banking Group which were arranged in February, along with £105 million revolving credit facilities, which will then be re-drawn to fund Genesis’s development activities.
In advance of the deal, Genesis obtained ratings of A1 from Moody’s and AA- from Fitch.
The 10-week timescale was made possible by using recently-valued properties which had already been used to secure Genesis’s bank borrowings, as well as retaining the same security trustee – Prudential Trustee.
The key covenant structures were:
- Asset cover of 125 per cent for properties valued on a ‘market value – subject to tenancies’ (MV-T) basis, and 105 per cent for properties valued as ‘existing use – social housing’ (EUV-SH); and
- Interest cover of 90 per cent in any one year, and 105 per cent over any three years.
The deal also incorporates a pre-default structure relating to the interest cover covenant, which will enable Genesis to negotiate with bond-holders in advance of any potential default.
In the event of an impending covenant breach Genesis would meet with bond-holders within 30 days to seek their approval to re-structure the deal in order to avoid default, finance director Mark Gayfer told Social Housing magazine.
If investors did not approve the changes, they would be able to call on Genesis to re-pay their investment valued at par (known as a ‘put option’) within 15 days; only in the event of Genesis being unable to make the re-payment would the group be considered to have defaulted, Mr Gayfer said.
The deal is structured in two tranches, with £50 million remaining undrawn for future use at a week’s notice.
Mr Gayfer said: ‘We felt it was always useful to have additional short-notice funds, in case they were necessary.
‘If we want to access that £50 million, we will put the security in place and a book-runner will take it out to the market for us on the same terms as the first £200 million, although obviously we don’t know what price that would be at, and that would affect the exact amount we would raise.’
The recent financial turmoil in Dubai gave the issue a boost by making investors more eager for reliable investments, Mr Gayfer said.
However the financial markets’ negative reaction to the government’s Pre-Budget Report drove up gilt prices, adding a small amount of additional cost to Genesis’s pricing.
The funds will be disbursed to Genesis subsidiary PCHA by new funding vehicle Genfinance II, which was set up specially for the role.
The group will focus on building out developments which have already secured both planning permission and Homes & Communities Agency funding, Mr Gayfer said; it does not plan to make further land acquisitions.
