Sunday, 30 April 2017

Places for People closes retail bond offer early to sell £65m at 4.25%

Places for People (PfP) has sold £65m of seven-year retail bonds at a coupon of 4.25 per cent through the non-regulated part of its group.

PfP opted to close the offer three days early, on 9 December 2016, rather than 12 December as originally planned.

The issue marks the third retail bond for PfP, after it entered the market in 2011. A2Dominion followed PfP into that market in 2013 and 2014.

Retail bonds are listed on the London Stock Exchange’s OBR market, which means they can be regularly traded. Investors in housing association retail bonds have included wholesale institutional investors and retail investors, such as wealth managers running discretionary funds and trusts, along with family offices.

However, this deal saw the bonds issued by Places for People Finance, a special purpose company and a wholly-owned subsidiary of Places for People Group, which supports its commercial activities.

The new sterling denominated 4.25 per cent bonds mature in December 2023 and will support activities across property management, leisure management, development and construction sectors via the PfP Operations group.

Under the deal, bondholders would only have recourse to the commercial obligors, and ‘not to the providers of social housing or any other entity within the group’, according to the prospectus.

The bonds are ‘irrevocably and unconditionally guaranteed’ by its commercial entities, including PFPL, Places for People Ventures Operations, Residential Management Group Limited (RMG) and Touchstone Corporate Property Services, and Zero C, together with PfP Operations.

PfP Operations and its subsidiaries make up a sub-group  which carries out various commercial activities in the property management, leisure management, development and construction sectors.

PfP reworked its treasury structure in the 2015/16 financial year.

It set up Places for People Treasury, a new treasury vehicle, to raise funding for its registered providers. The treasury vehicle will not do any on-lending to commercial subsidiaries in the group, instead serving four affordable housing entities Places for People Homes, Places for People Living+, Cotman and Castle Rock Edinvar.

Investec was lead manager on the PfP deal.

The fixed rate of interest is payable twice yearly on 15 June and 15 December of each year with the first coupon payment being made on 15 June 2017.

An interest cover covenant is included at a ratio of adjusted EBITDA to interest costs of 1.5:1.

The bonds had a minimum initial subscription amount of £2,000 and are available in multiples of £100 thereafter.

It marks the latest financing after PfP, which owns or manages 152,783 homes, issued the sector’s biggest ever bond in August 2016 through Places for People Treasury. That deal priced at 225 basis points over the reference gilt and a coupon of 2.875 per cent, with a 10-year maturity. The issuance attracted interest form 160 investors.

Some of those funds were used to repay its 2016 £140m retail bond, issued five years ago at a coupon of 5 per cent. PfP also has a 10-year retail bond that it issued in 2012, maturing in 2022. 

PfP saw its credit rating downgraded in relation to the diversification of its business and refinancing risk in summer 2016.

Moody’s said the group made 56 per cent of its turnover from non-social housing letting activities in 2016 and this was projected to rise to 64 per cent in 2018, compared to a peer average of 27 per cent in 2015.

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