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Supporting Older
People Conference
B27: Financing mid-sized and smaller
housing associations
Speakers: Dr Howard Webb
Director Sector
Jason Oakley
Director, Commercial Banking Metro Bank
National Housing Federation Finance Conference
March 2013
Financing Mid-sized and Smaller Housing Associations Breakout Session B26
{Financing mid-sized and smaller housing associations | March 20I3
1. Future of bank lending – who’s hot and who’s not
2. Capital markets – how big do you need to be to issue bonds directly
3. Other routes to the capital markets
4. Direct lending by institutional investors
4
Number of units or funding requirement?
For the purpose of this presentation only
A mid sized housing association is one with a borrowing requirement of £30 -£100 million
A small housing association is one with a borrowing requirement of less than £30 million
A problem of definitions
5
The usual suspects
• RBS/Lloyds/Nationwide/Santander/Barclays
• Balance sheet constrained
• Funding costs high
• Back book underwater
• No more long-term funding
6
Typical terms
• Margins 2.75% plus
• Arrangement fee – 0.50% to 1.0%
• Commitment fees – half of margin
• Maximum term 5 years
• Maximum deal size - £ 50 million
• Hedge premia – 0.25% to 0.30%
• Special deal – Funding for Lending
7
Bad behaviours
• New money comes with
− repricing of existing loans − And /or shortening of maturity
• Introduction of 5 year margin review clauses
• Business plan approval getting more difficult
• Consents at a price
• Hedging as a means of profit extraction
New bank lenders
• Yorkshire Building society − Old friend − Renewable annual pot
• Clydesdale/Yorkshire bank
− Now you seen them now you don’t
• Triodos
− The “ethical bank”
− Have you got an angle?
• Metrobank
9
The debt capital markets
• Own name bonds – Large borrowers
• Aggregating vehicles – all borrowers
− THFC – tried and tested route to market − GB Social Housing – new entrant
• Direct lending -£30 million plus
• Private placements - £50 - £100 million
RSL bond issues in numbers - 2008-2012
10
• Total RSL bond issuance - £4.9bn
• Total THFC bond issuance - £0.9bn
• Total number of RSL issuers -20
• Total number of THFC issues- 9
• Weighted average RSL issue yield -5.52%
• Weighted average THFC issue yield – 5.53%
• RSL average issue amount -£192m
• THFC average issue amount - £105m
2012 issuance
11
Issuer Rating Issue date Nominal Issue Yield
Issue
spread
£m % %
THFC Funding No3 A+ * 01/12 £131 4.94% 2.00%
Circle Anglia Aa3 03/12 £250 5.22% 1.98%
Radian Aa2 03/12 £75 6.03% 2.75%
Amicus Horizon Aa3 03/12 £100 5.36% 2.15%
Hastoe Aa3 03/12 £100 5.63% 2.15%
Sovereign Aa2 06/12 £250 4.54% 1.70%
Saxonweald Aa3 06/12 £225 5.34% 2.48%
East Thames Aa3 06/12 £250 5.49% 2.50%
Longhurst Aa3 07/12 £250 5.25% 2.42%
Affinity Sutton Aa2 09/12 £250 4.25% 1.25%
Midland Heart Aa2 09/12 £150 5.09% 1.96%
THFC Funding No3 A+ * 09/12 £127 5.00% 1.88%
Great Places Aa3/AA- ** 10/12 £150 4.81% 1.70%
WM Housing Group Aa3 11/12 £160 4.63% 1.55%
Together Housing Group Aa3 12/12 £200 4.58% 1.45%
Notting Hill Housing Trust Aa3 12/12 £250 3.78% 1.08%
Total £2,918
Average 5.00% 1.94%
Maximum 6.03% 2.75%
Minimum 3.78% 1.08%
12
Private placements
• No credit rating required
• Deal size £50 million or more
• Bespoke term and repayment structure
• Total fees lower than bond issue
• Higher credit margin, but potentially lower all-in costs
• Growing no of deals(Catalyst, MHT, First Wessex, Bromford, Newlon)
• Limited disclosure
13
Other funding sources and structures
• Legal & General, M&G, Scottish Life insurance companies
• Similar to private placement, but with no middle-man
• Minimum loan amount £30 million
• Direct negotiation with long-term investor
• Bespoke term, repayment and interest structures
• Bespoke financial and security covenants
• Higher credit margin, but potentially lower fixed rate
• Greater certainty on pricing
14
Other funding sources - Sale and leaseback
• Minimum amount circa £30 million
• Asset specific − Identifiable property portfolios − Need to be in good condition − Geographically concentrated
• Borrower takes − All demand/rental risk − Long-term bet on rent inflation − All management/major repairs risk
• Genuine long-term capital 30 to 40 years
• RPI link – cap at 5%, floor at 0%
• Off or on balance sheet?
15
Government guaranteed borrowing
• New development only
• Minimum loan £10 million
• Covenants not yet known
• Cost uncertain but existing Govt guaranteed borrowers give guidance
• Competition for grant but levels likely to be lower that 2011-15 programme
• Very tight delivery schedule
16
In summary …….
Bank debt
− In short supply for both medium and small borrowers
− High margins and with strings
− Generally only short term
Capital market (and variations thereof)
− In good supply for both medium and small borrowers
− Relatively “Cheap” at the moment
− Increasing competition between lenders
NHF Housing Finance Conference
Breakout Session B27
Jason Oakley – Managing Director
March 2013
Metro Bank – Ethos
“Amazing the Customer means providing
unparalleled Customer service, making sure every
transaction goes quickly and smoothly. It means
fulfilling Customer needs, even anticipating them.
More than that, it means turning Customers into
FANS. We want them to tell their family members,
friends and business associates about the
products and superior services we provide.”
- Vernon W. Hill, II
• Britain’s 1st new High Street
Bank in over 100 years
• 7 days a week / 361 days a
year in-store banking
• Across London with 16 stores
and growing
• Target 200+ stores in London
& South East
Metro Bank – Growth
Metro Bank – Coverage
• Focus on London & South East
• We will lend as far north as Northampton, Cambridge
and Banbury, and as far west as Newbury and
Southampton
Metro Bank – Customer Service
• Unrivalled Service & Convenience
• 97% of Customers recommend us
• Retail, not banking, mentality
• Based on blueprint of world renowned Commerce Bank
in US
Metro Bank – Social Housing
• Metro Bank – new entrants to Social Housing finance
market
• Focus on smaller HAs in London & South East
• Long term committed loan products
• Develop strong and broad relationship with HAs
Debt Finance
Deposits
Day to Day banking
Typical Loan Offering in HA Sector
• 25 year committed term loan facility
• Amount: Up to £10m
• Availability Period: Up to 24 months
• Asset Cover: 115% EUV-SH & 130% MV-STT
• Covenants:
• Interest Cover – Annual & 3 year rolling
• Gearing – Traditional
• Treasury Management: Ability to fix interest rates
Metro Bank – Deposits
• Competitive rates for Instant Access and Fixed Term
Deposits
• Fully authorised by the FSA, having met all of their new
Capital and Liquidity Requirements
• We have many times the “Tier 1 Capital” we need.
• We are members of the Financial Services
Compensation Scheme (“FSCS”) and contribute to the
“safety net” fund
• We invest only in safe and highly rated government
debt (Gilts) and other highly rated investments. We do
not speculate (“Casino Banking”)
Metro Bank – Broader Offering
• Agreed pilot for Shared Ownership mortgage initiative
in London boroughs
• Basic Tenant Bank Accounts
• Staff bank accounts
Metro Bank – Contact Details
Jason Oakley
• Managing Director – Commercial
• Email: [email protected]
• Mobile: 07950 831 317
Julie Barnsley
• Head of Not for Profit
• Email: [email protected]
• Mobile: 07961 587 280
Craig Wilson
• Commercial Banking Director
• Email: [email protected]
• Mobile: 07950 831 398
Supporting Older
People Conference
B27: Financing mid-sized and smaller
housing associations
Speakers: Dr Howard Webb
Director Sector
Jason Oakley
Director, Commercial Banking Metro Bank