Notting Hill issues £400m bond at 3.25% after being twice oversubscribed by investors

The issuance priced on Wednesday last week (4 October 2017) just as Prime Minister Theresa May announced a £2bn of funding for affordable housing and shortly before the government confirmed a return to a rent policy linked to the consumer price index (CPI) plus one per cent.

Ninety six per cent of the bonds went to fund managers, pension funds and insurance companies.

Notting Hill had set off on an investor roadshow a week earlier and met with more than 30 investors shortly after Moody’s downgraded the sector as a result of its decision to move the UK sovereign rating downwards over Brexit and the state of the country’s public finances.

The group had originally looked at a £350m bond issue over 40 years, but opted for a larger amount and shorter term.

It issued a 31-year bond at a spread of 135 basis points over the UKT 1.5% July 2047 reference gilt.

It meant an all-in cost of funds of 3.289 per cent. It is secured against social housing assets and includes standard covenants of asset cover at 115 per cent MV-T or 105 per cent EUV-SH.

Bookrunners on the deal were Barclays, HSBC, Lloyds and Santander. Notting Hill’s funding adviser is Rothschild, while Devonshires provided legal advice. JLL conducted the funders’ valuation with Addleshaw Goddard the lawyers on the funders’ side.

The money was raised through Notting Hill Housing Trust and will be used for ‘general corporate purposes’.

Notting Hill – which owns and manages 32,000 homes – is a well-established name in the debt capital markets.

It last raised £250m over 40 years at a margin of 98 bps over the gilt in 2014, which marked its third public bond since July 2010.

The group has an A3 (stable) rating from Moody’s, and an A+ from (negative) from Standard & Poor’s.

Along with a sector-wide downgrade in September 2017, Moody’s moved Notting Hill’s underlying rating – or base case assessment – down by one notch because it had fallen below its 18-month liquidity policy.

Notting Hill had planned to raise money on the markets in July 2017, but its merger discussions with Genesis had resulted in a delay and knock on to the treasury policy.