Government-backed PRS funding scheme makes £265m debut issue at 1.75% coupon

The 10-year issuance by PRS Finance, a subsidiary of Venn Partners, priced today (17 November 2016) at a spread of 46 basis points over the gilt and all-in cost of 1.85 per cent.

The sole borrower is understood to be London & Quadrant.

The bonds - guaranteed by the Department for Communities and Local Government - were priced over the UK Treasury 1.5% 2026 gilt. They mature in November 2026 and were rated Aa1 by Moody’s.

Bookrunners were RBS and HSBC and roadshows took place last week.

The £3.5bn PRS guarantee scheme (PRSGS) , which enables landlords of new rented homes to use a government guarantee to secure long-term financing, forms part of a £10bn guarantees programme announced in 2013 and is intended to stimulate the building of new homes for the private rented sector across the UK.

It accompanies the £3.5bn Affordable Homes Guarantee Programme (AHGP), which is managed by aggregator Affordable Housing Finance (AHF), the subsidiary of The Housing Finance Corporation, and has issued debt at record-low rates.

AHF’s issued its second bond, with an average maturity of 28 years, shortly after the July 2015 budget at 40bps over gilts, which it has since tapped on several occasions.

While the PRS funding will support new build schemes, it will only provide the refinancing once the scheme is built.

Moody’s affirmed the Aa1 rating to the £3.5bn PRS programme, ‘based solely upon the unconditional and irrevocable guarantee of scheduled principal and interest on the bonds secured under the programme to be provided by the Secretary of State for Communities and Local Government (DCLG)’.

Bonds will be issued and loans granted by Venn’s financing company, PRS Finance, and on-lent to approved borrowers against private rented sector assets. PRS Operations is the beneficiary of the government licence to manage the PRSGS  and will originate and underwrite the loans to borrowers and make credit decisions.

Applications for the private rented sector debt guarantee must receive approval in principle from government by 31 December 2016.

The licence includes an option for a one-year extension, which was also the case under the AHGP agreement and was taken by AHF.

A DCLG spokesperson said: ‘This government is committed to supporting a bigger, better private rented sector and is providing up to £10bn government-backed guarantees to build more quality rental homes.

‘This bond is an important step in strengthening the sector and increasing supply so that it meets the need of tenants well into the future.’