Bromford brings new American investors into UK housing with £100m deal at just 3%

Five investors took part in the deal, which was signed today (1 March) after Bromford completed roadshows in the US, Canada and London last month and presented to 15 prospective funders.

Of the five investors on the deal, two are new to the sector, which follows a recent trend of new funders coming into social housing, particularly from the US.

Social Housing revealed in January that Network Homes had secured £175m from six American investors, including one new funder.

Bromford’s order book was three and half times subscribed, which the group said highlighted “the strong level of interest from investors despite the prevailing uncertain economic climate and unprecedented difficulty recently observed in the UK markets”.

The latest funding package comes after Bromford – which owns and manages 44,000 homes and has the sector’s leading credit rating – raised £300m from UK sterling investors last year with an own-name bond at 135 bps, making it one of the year’s tightest own-name spreads in the sector.

The group has also recently completed a three-way merger that has brought Merlin and Severn Vale together under the Bromford umbrella.

Bromford is planning to deliver more than 1,000 new homes each year, with a target of 14,000 homes over a decade. It was announced as a Homes England strategic partner last month.

Imran Mubeen, head of treasury and planning at Bromford, said: “We have been following the North American market for a while and were keen to leverage the sharper levels of pricing while diversifying our investor base.

“It was particularly important to engage with investors directly on the roadshows to highlight the strengths and opportunities associated with the UK social housing sector and the Bromford credit profile specifically.”

Pricing on housing association own-name bonds has been in the region of 148 to 173 bps, including for some shorter-dated deals, while new aggregator MORhomes launched at 190 bps earlier in the month.

Bromford is rated A+ by Standard & Poor’s (S&P) with a negative outlook, and A1 from Moody’s with a stable outlook, making it the best rated in sector. The rating agencies cite the strong focus on social rented housing and a traditionally low-cost, stable and profitable business. S&P’s negative outlook reflects the agency’s view of the UK sovereign rating, which underpins all government-funded and regulatory-backed housing association profiles.

Mr Mubeen said there was a strong order book across a range of tenors with a competitive covenant package, “which is a testimony to the continuing strength of our financial position and business plan”.

He added: “We were particularly pleased to bring new investors to the sector and to price inside of our UK public bond, which we see as a paradigm shift for UK social housing.”

Lee Gibson, executive director of finance at Bromford, added: “This new funding complements our debut public bond of last year and it places us in a fantastic position to continue investing in our existing customers and realise our growth and development objectives for future customers.”

NatWest Markets acted as the sole agent in Bromford’s private placement issuance, and JCRA provided specialist treasury advice. Trowers & Hamlins, Morrison & Foerster, and Greenberg Traurig provided legal advice. Savills provided valuations. The secured deal required a mix of homes at EUV-SH and MV-ST.

Henrietta Podd, director at JCRA, said: “We are great supporters of the US private placement market as we believe it offers rated, high-quality associations substantial advantages on price, while providing considerable flexibility on covenants.”

George Flynn, vice-president – financing and risk solutions at NatWest Markets, added: “The transaction’s competitive pricing and oversubscribed order book bears testimony to the continued investor appetite for companies with strong credit ratings, and highlights the importance of a well-structured and considered approach to the private placement market.”

The deal marks the latest stage of Bromford’s funding and treasury strategy.

Merlin came into the Bromford group in summer 2018, and Severn Vale formally joined at the start of this year. The process has seen the two registered providers merged into a single entity, sitting alongside Bromford Housing Association.

Finance and treasury is now a single function across the group, with work ongoing to review the loan book. At March 2018, Bromford had £630m in drawn loans, while Merlin had £151m and Severn Vale had £119m.