Flagship Group has issued the sector’s longest-dated sustainability bond to date – a 40-year, £250m bond that also marks the 32,000-home group’s debut capital markets outing.
The 9 July issuance had a coupon of 1.875 per cent and a spread over gilts of 95 basis points (bps), leading to an all-in cost of funds of 1.969 per cent. A £100m portion was retained for future use.
Made through a new sustainable finance framework, the proceeds of the bond will be used to build new affordable homes, fund energy efficiency projects and provide digital training, equipment and connectivity to tenants.
The East of England-based group joins a number of housing associations this year in issuing sustainability bonds. However the majority of labelled issuance to date has been at shorter-dated tenors, of around 15 years, in part to meet the demand from some ESG-focused funds at this part of the yield curve.
More recently, in May, Beyond and Paradigm both issued 30-year bonds. The former priced its £250m issuance at 90bps over gilts, with an all-in cost of 2.216 per cent. Meanwhile, Paradigm’s £350m (£100m retained) bond priced at a spread of 88bps over gilts, leading to an all-in cost of 2.279 per cent.
Elsewhere, The Housing Finance Corporation has issued 33-year ‘social’ bonds through tapping the 2054 maturity of its funding subsidiary, Blend, shortly after retrospectively applying the label to nearly £1bn of existing issuance.
Flagship said that despite there generally being lower demand in the market for the long-dated tenor, interest from the 30 investors it engaged with over a three-day process led to a “robust” final order book of £335m.
David Armstrong, chief financial officer, said: “We are absolutely delighted with the extremely successful result for the group, locking in historically low rates for the long term. This is another big step forward for Flagship, establishing ourselves in the sterling bond market where we aim to be a regular issuer.”
The transaction was supported by the group’s treasury advisors, Chatham Financial, and marketed by joint lead managers NatWest and Barclays. Sustainalytics acted as the second-party opinion provider.
Flagship, which completed its second merger in two years last January (2020), when it brought 3,000-home Suffolk Housing Society into the group, is rated A2 (stable) by Moody’s. It has a G1/V1 grading from the Regulator of Social Housing.
Social Housing reported in June that in excess of £4bn of capital markets issuance by or on behalf of housing associations now bears an ESG label, with activity particularly concentrated in the current calendar year.