The 30-year issuance completed on 21 July, having priced a week prior at a spread of 93 basis points over gilts. On top of the £350m, an additional £100m of bonds were retained for future use.
Sarah Jones, chief financial officer at the group, told Social Housing that the bond marks the final step in a refinancing of the provider’s legacy facilities dating back to the 2018 union between Anchor and Hanover – and beyond.
“It’s certainly the culmination of tidying up post-merger but actually the major restructuring was a journey that we started on as Anchor Trust even before the merger, so it’s been a long game.”
A key part of this exercise was completed in April, as Anchor Hanover became the first housing association to make its banking facilities fully unsecured – as well as sustainability-linked. It signed a £300m syndicated loan linked to sustainability KPIs through a new sustainable financing framework, with a club of four banks including a first-time lender to the group, National Australia Bank.
This replaced a previous £265m syndicated loan with the three other lenders, MUFG, Santander UK and Barclays.
At that time, Ms Jones indicated that the group was eyeing the markets for its debut bond as a merged organisation, having freed up security as well as gaining its first credit rating – an A+ from Standard & Poor’s.
The bond repays a £350m bridging loan put in place at the time of the earlier refinance, provided by the same four banking partners, which were also bookrunners on the bond. Added to the SLL, the £650m funding enabled Anchor to take out all of its legacy facilities bar a small amount of legacy debt capital markets funding, release the security, and refinance the whole package.
“A proportion [of the bond proceeds] will be to complete the refinancing, and then a third of it is already allocated to future development, so this is really our additionality agenda [to provide more homes] ,” Ms Jones said. “Because of the other criteria that we set ourselves, that additionality will also be affordable and environmentally friendly. We’re targeting an upper-end EPC B for all of those new developments.”
Anchor, which specialises in housing older people, has set out a commitment to build 5,700 sustainable homes as well as expanding its residential care home portfolio and investing in existing services.
Safe and secure
While deliberately pursuing an unsecured approach on its banking portfolio, Ms Jones said that the group had always intended to secure its bond, partly in acknowledgment that it was a debut issuance and that the group’s specialist focus means that it is not a “typical housing association” that investors are used to seeing.
“That was [always] part of the plan, to release the security from the banking facilities, and move it across to the bond. And so we’ve ended up expanding our loan book a little… but we’ve actually got less security attached to it, so that’s a really positive thing.”
The all-in coupon on the day was two per cent, but the transaction also featured a gilt lock put in place in March at the time of the earlier refinance, meaning that the issuance is priced over the March rate.
Ms Jones explained that the decision put this mechanism in place in March stemmed from a desire to mitigate risks associated with the costs of effectively breaking and replacing the group’s whole debt portfolio (half replaced by the new syndicated loan, and half to be replaced by the anticipated bond).
“Because the gilt was so low at that point, and because there was just so much uncertainty, particularly in the market around inflation and about how that would manifest itself, we put in a gilt lock that meant that regardless of when we went to issue the bond we were effectively locking the underlying gilt rate on that day. It gave us the certainty up front that, on the basis of the gilt [being] at that level, we knew that breaking everything and putting everything in new again was economically the right thing for us to do.”
Because the gilt rate had dropped slightly at the time of the issuance, compared with when the lock was instigated in March, Anchor will pay the small difference on top of the coupon, making the all-in rate (including fees) 2.277 per cent.
Ms Jones said: “From the point of view of Anchor Hanover we will always seek to mitigate downside risk as far as possible, and if that means that we forgo speculative upside risk, so be it. That’s a very strict rule that we have.”
The group was also clear that it wanted to pursue a long-dated bond, at 30 years, as opposed to the circa 15-year tenor that has been seen in much of the recent flurry of sustainability bonds in the sector.
The issuance was two times oversubscribed, with 30 investors participating.
Funders responded positively to the group’s sustainability framework, Ms Jones said: “I think the engagement that we had from the investors was genuine interest in understanding what we were trying to achieve and how they could help us. It definitely wasn’t a sense of anyone paying lip service or having to meet a quota for something; particularly with some of the major investors there was genuine engagement, which gives me real confidence for the future.”