Blend priced the publicly issued bonds simultaneously for two borrowers, selling £75m deferred for 12 months and £25m deferred for six months.

Funds will be received by 21,000-home, Walsall-based WHG and 6,000-home, Liverpool-based Cobalt respectively. Both associations are first-time borrowers from Blend.

The £75m tranche has a price of 2.26 per cent and a spread of 148 basis points (bps) over gilts, with the £25m pricing slightly tighter at 2.21 per cent and a spread of 143 bps.

The publicly issued deferred deal marks the first by an aggregator in the social housing sector, and THFC believes it to be the first of its kind by a bond aggregator more broadly.

Fellow sector aggregators GB Social Housing and MORhomes have not completed deferred deals to date, although the latter has drawn up documentation for doing so, and THFC has also not previously arranged deferred funding through its other issuer, THFC Funding No 3.

More widely, as uncertainty remains over future conditions in the financial markets amid the continuing COVID-19 pandemic and the impact of Brexit, a spate of deferred deals by housing associations have been seen, including through private placements.

In the public markets, G15 landlord Optivo created its own novel structure for a deferred deal at the end of September, by tapping its existing 2043 bond for £150m through a deferred sale in 18 months’ time at a spread of 150 bps and a yield of 2.213 per cent.

The housing association paid 20 bps on the spread as a cost of deferral to be spread over the life of the bond, while enabling it to lock in current rates and prepare the bond documentation and security to present in 18 months’ time.

Deferred drawdown

Blend’s latest deal follows on from an earlier £250m transaction last week, which saw it tap its benchmark 2054 bond for £100m for Liverpool-based Torus, while issuing another £150m retained.

Those bonds settled on Monday (12 October), and on Tuesday (13 October) Blend priced £100m of the retained bonds through forward purchase agreements with investors on the two tranches allocated to WHG and Cobalt.

Blend’s deputy treasurer Will Stevenson said that the pricing was “at least 25 bps inside current typical private placement levels, demonstrating Blend’s ability to secure competitive rates of funding for its borrowers, even when innovating new products”.

The deal enabled West Midlands-based WHG, which has its own A3 (stable) rating from Moody’s, to access funding under Blend’s A2 issuer rating. Cobalt, which manages homes across north Liverpool, has a private credit rating with Moody’s.

Piers Williamson, chief executive of Blend and THFC, said the deal marks a “significant development for the sector”, in response to growing appetite for deferred drawdown.

He added: “With no foreseeable easing of political and COVID-related uncertainty, we know that deferred drawdown can provide a buttress for HAs’ business plans and mitigate funding risk and carry costs, so the sector can continue with their commitment to build even more badly needed affordable homes.

“Today’s transaction adds a significant competitive alternative to private placements. We believe it’s the first time an aggregator has issued public bonds on a deferred drawdown basis, but for the sake of the sector we’re confident it won’t be the last.”

Richard Nowell, treasury manager at WHG, said: “This funding will help WHG realise our ambitious growth strategy to expand the services offered to our customers and build new affordable homes across our communities in the Midlands.

“The inclusion of deferred drawdown under the Blend model means WHG can take advantage of current market conditions to secure the funding we need in the future, and is a positive development for the affordable housing sector.”

Jon Webster, director of resources at Cobalt Housing, said “The Blend team have been incredibly responsive to our interest in deferred drawdown, and today achieved this at a great rate. This secures deferred long term funding to support our business plan, deliver quality affordable housing for our residents, as well as new homes across our neighbourhoods.”

In August, Blend tapped its 2047 bond for a £38m loan to two housing association borrowers – Leeds Federated Housing Association and Ateb Group – at an all-in rate of 1.97 per cent.

Source

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