B4: Bonds and banks what s on offer?

Transcription

1 B4: Bonds and banks what s on offer? Speakers: Chair: Paul Rickard, Director of Corporate Finance, Circle Housing Gareth Francis, Deputy Treasurer, The Housing Finance Corporation Joseph Carr, Policy Leader, National Housing Federation Sponsored by

2 Bonds and banks what s on offer Circle Housing Paul Rickard, Group Finance Director (Corporate)

3 Commercial Paper Funding options Equity? million Sovereign wealth fund? Foundations? Own name bond Cross-subsidy? Retail bond Bank Private placement Crowd funding Term 16

4 Key considerations Term Security Future proofing Price Covenants Use/ Availability 17

5 Traditional funding DCM 18

6 Innovating in the new world Private Placements CLIP Hybrid debt NEF Crowd funding ESG bonds Government guarantees CP 19

7 Innovating in the new world Treasury Skills? Passivhaus Passive mouth 20

8 Pricing and term 21

9 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Why should you care? Business 1 DR/Hurdle 6% Firm cash requirement Business 2 8.5% Business 3 16%

10 Does size matter? < 25[?]m > 25m Banks Banks THFC Crowd sourcing THFC DCM Composite Solution? PP Retail bond 23

11 Cross subsidy as cheap funding Landericus 7 states 1,023 units 24

12 Further afield European corporate tie-ins Corporates recognise the importance of housing French 1% model? All large companies contribute to a housing pot Berlin limited competition model? Only 2 HAs per patch 25

13 Underlying it all 26

14 THFC

15 THFC HA Sector debt sources 15 Bond Bank 46

16 Capital Markets v Bank comparison THFC Banking Market Capital Market Liquidity Model Borrow short, lend long Asset/liability matching Funded from Inter bank wholesale market Pension, life, annuity funds Strengths Weaknesses Flexibility (at a price?), direct contact, lender familiarity, security efficient Lack of predictability, funder concentration, price dependencies, availability of long term funding Who? Pre-credit crunch c.8 participants top 5 provided 85% of commitments. Now a handful of active lenders. Price, familiarity with HA Sector, long term stability, non invasive covenants Perceived inflexibility, jargon, minimum deal size & cost of carry, less security efficient, high redemption/break costs? c funds incl Prudential, L&G, Aviva, Standard Life, Aegon, Insight, Royal London, CIS

17 THFC Bond Debt Public bonds Private Placements Retail Bonds Loan from aggregator Bond Options THFC, AHF, GB Social Housing, Carduus Funding sourced from the bond markets or, in the case of THFC and AHF, from the European Investment Bank

18 Issuance m 1800 Bond issuance since 2010 THFC Retail PP Bond Q12011 Q22011 Q32011 Q42012 Q12012 Q22012 Q32012 Q42013 Q12013 Q22013 Q32013 Q42014 Q12014 Q2

19 THFC Accessing the market How much do I need or want to borrow? What is my key driver? Cost of funds Maturity and repayment profile Flexibility on drawdown Covenants/security Timing/certainty of delivery Do I want to get a rating? What sort of relationship do I want with investors?

20 THFC Size matters Own named public bond issues Private placements Aggregated debt

21 Cost of funds THFC Private placements Cost of funds is negotiated between borrower and investor/s Based on comparators if appropriate but premium pricing usually expected A rating may deliver lower cost of funds Loan aggregator funded from bond markets The cost of funds will be based on rating of the aggregator, pricing of existing bonds, size of the issue and reputation/investor familiarity A rating for HA participants is generally not required

22 THFC Drawdown, maturity and repayment Private placement Flexibility can be negotiated Deferred drawdown only a small number of investors Bullet or amortising repayment Loan aggregator Limited flexibility on drawdown but retained bonds and access to regular tap transactions increase flexibility Repayment profile driven by demand from majority of borrowers and set for future taps

23 THFC Covenants and security Private Placement Negotiated between investor and borrower but similar to covenant-light public bond issues Loan aggregator Limited flexibility for negotiation of covenants Ranging from asset specific covenants only to a menu including corporate financial covenants

24 THFC Timing/certainty of delivery Private placement Will depend on negotiations with investor/s May require concessions as negotiations near completion Loan aggregator Requires critical mass Standardised documentation

25 What matters to UK investors Increasing supply of HA bonds and PPs THFC Regulatory landscape Commercial activities Impact on cashflow of Lower grant rates, affordable rent Welfare Benefit Reform

26 THFC Aggregation - considerations Existing aggregators have set rules already and limited flexibility on covenants but can offer Standard documentation Investor familiarity Repeat borrowing through taps and size flexibility via retained bonds Speed to market Set up costs and ongoing costs can be shared

27 Recap - Accessing the market How much do I need or want to borrow? What is my key driver? Cost of funds Maturity and repayment profile Flexibility on drawdown Covenants/security Timing/certainty of delivery Do I want to get a rating? What sort of relationship do I want with investors? THFC

28 Government Guarantee Scheme THFC UK wide policy to generate new housing supply 10bn for affordable and private rented sector (PRS) 3.5bn affordable 3.5bn PRS 3.0bn TBD

29 THFC PRS Guarantee Features NOT construction finance Max loan/equity 80/20 Min projected rent/interest cover: Net 1.2:1 Standard financial and corporate covenants Guarantee fee payable

30 Affordable Guarantee THFC Features No corporate covenants Secured on existing assets: EUV-SH 115% Net interest cover 100% c. 0.7bn placed: 0.5bn EIB facility 0.2bn bond May 2014 Bond priced at 0.37% over Gilts - effective interest of 3.76%

31 THFC Affordable Guarantee - Eligibility A large variety of schemes nil-grant funded schemes s106 schemes Local Authority supported and an increased window for construction approval by March 2016, drawdown by Sep 2016 start on site by September 2017 no PC requirement most schemes starting post application eligible

32 QUESTIONS? THFC

33 B4: Bonds and banks what s on offer? Speakers: Chair: Paul Rickard, Director of Corporate Finance, Circle Housing Gareth Francis, Deputy Treasurer, The Housing Finance Corporation Joseph Carr, Policy Leader, National Housing Federation Sponsored by