AHF, which lends to registered providers of affordable housing in the UK, is rated AA and guaranteed by the UK government.
The issuer uses bonds and European Investment Bank borrowings to fund its lending activities. Thursday’s deal is the third time the issuer has tapped the original bonds, issued in August 2015, which have an expected 2043 maturity and a 2045 legal maturity. Since then, Affordable Housing has tapped those notes in March and June, bringing the latter offering forward ahead the UK’s vote to leave the European Union. The bond’s total size is now £723.9m.
AHF’s pattern of tapping existing notes fits with its business model of aggregating demand from various housing associations. Once AHF has approved and accumulated enough applications to borrow from its Affordable Housing Guarantee Scheme, it goes to the bond market.
“We wait until we have critical mass, aiming for £150m-£200m and then we go to market as soon as we can,” said Fenella Edge, treasurer at THFC in London. “Equally our borrowers don’t want to wait a long time until we have £500m so we think £150m-£200m is about the right level to go to market for a tap.”
AHF is still processing credit applications for the guarantee scheme, which closed in March 2016. Should enough housing associations be approved, more bonds may well follow.
Bookrunners HSBC, RBC Capital Markets and Royal Bank of Scotland gave initial price thoughts in the 43bp-45bp area over mid-Gilts.
The leads then moved to guidance of 41bp-43bp before the deal was priced at 41bp over the 4.5% December 2042 Gilt. The original 2043 notes were trading at 43bp over Gilts on Wednesday, giving the tap a negative 2bp new issue premium, said a banker on the deal.
Investors posted over £345m of orders for the deal.
While AHF can rely on bond markets for future funding it can also count on the EIB, despite the Brexit vote. The issuer has signed £1bn of committed facilities with the EIB and agreed an August draw down this week.
“We are just processing draw downs as business as usual under those facilities,” said Edge.