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Guinness issues £400m bond at 2% coupon marking further tightening of sector pricing

The Guinness Partnership has become the third major association to re-enter the debt capital markets in little over two weeks, issuing a £400m own-name bond at a coupon of two per cent.

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Guinness becomes the third major HA to issue a bond in just over a fortnight (picture: Getty)
Guinness becomes the third major HA to issue a bond in just over a fortnight (picture: Getty)

Guinness issues £400m bond at 2% coupon, becoming the third large association to issue in just over a fortnight and marking further tightening of sector pricing #ukhousing #socialhousingfinance

The 65,000-property housing and care provider sold £250m of the bonds yesterday (15 April 2020) at a spread of 145 basis points over the UKT 4.25% 2055 gilt and an all-in cost of 2.02 per cent, following a single day of marketing to investors.

It has retained £150m for later sale, but increased the overall size of the issuance after the bonds were “significantly oversubscribed, demonstrating continued investor confidence in Guinness and in the social housing sector”.

Phil Day, group finance director at Guinness, said: “The very strong demand for our bond and the final spread over gilts of 145 basis points that was achieved shows that the capital markets remain supportive of housing providers.

“We increased the size of our bond during execution which was reflective of the strength of the order book.”

The deal, which attracted 39 investors, also marks the first issuance since housing association bonds – including Guinness’ issuance – were confirmed on the Bank of England’s corporate bond-buying programme, extended by chancellor Rishi Sunak as part of the government’s response to support businesses, the markets and broader economy during the COVID-19 pandemic.

Guinness follows Sanctuary Group and Optivo into the capital markets earlier in April and at the end of March respectively.

Its bonds will support some refinancing and the group’s development aspirations to deliver 5,500 new homes by 2024 and 12,500 over the next 10 years.

Barclays, MUFG and NatWest Markets acted as joint bookrunners on the transaction, with Newbridge as treasury advisor. Trowers & Hamlins were the legal advisors.

JLL provided the funders’ valuations, while Allen & Overy provided funders’ legal advice.

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S&P downgrades Guinness Partnership over reduced sales targets and ‘weaker debt profile’S&P downgrades Guinness Partnership over reduced sales targets and ‘weaker debt profile’

Sector pricing

Optivo was one of the first to re-enter the corporate sterling bond markets following a period of severe markets volatility in March, with a 15-year £250m public issue – including £100m retained – at a coupon of 2.857 per cent and a spread of 230bps.

It was followed a few days later by Sanctuary, which also increased the size of its 30-year issue to £350m due to investor demand, before pricing at 170bps and a coupon of 2.375 per cent.

There had been suggestions from some investors that housing associations would need to adapt to new pricing levels, given the impacts of COVID-19 on the funding markets.

However, the Guinness spread is more comparable to those achieved by associations in 2019.

Dominic Brindley, director in the corporate financing and risk solutions team at NatWest Markets, told Social Housing last week that there were already signs of spreads tightening.

Guinness is rated A2 stable and A- stable by credit ratings agencies Moody’s and Standard & Poor’s respectively.

Similarly to Sanctuary – rated A2 stable by Moody’s and A+ stable by Standard & Poor’s – it has a significant care and support business.

In January, S&P moved Guinness’ rating from A to A-, citing a weaker debt profile and “substantial lowering of development targets”.

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