'Sector first' £120m private placement for housing association | Housing Finance Network news

'Sector first' £120m private placement for housing association

Southway Housing Trust has agreed a £120m private placement, the first in the social housing sector to be linked to the delivery of a range of sustainable outcomes.

The debut private placement is a ‘sustainable use of proceeds’ deal that will support Southway to achieve its targets across its Environmental, Social and Governance (ESG) work.

The resulting investor demand was high, meaning the size of the bond increased from the £85m launch amount, with the order book six times oversubscribed.

The 6,300-home, Manchester-based housing association is committed to being a net zero-carbon organisation by 2038, in line with the Zero-Carbon Manchester Plan.

The private placement – which was agreed with institutional investors from both North America and the UK – will also be used to help deliver Southway’s 1,600-home development plan and reduce its overall cost of debt.

Under its Zero-Carbon Strategy, Southway plans for:

  • All new homes to meet EPC B or above;
  • Fuel-poor households to be at EPC C or above by 2030 and all existing homes to be at least EPC C by 2035;
  • No gas heating in new homes by 2025 and all new heating programmes to existing properties to be non-gas by 2025;
  • Fully electrifying its vehicle fleet by 2025.

Southway also has a clear Community Investment Strategy, with a core aim to reduce poverty within Southway communities and a commitment to invest at least £1m per year in community and social service-related projects.

Karen Mitchell, Chief Executive at Southway, said: “We are delighted with the outcome of the private placement. Obtaining funding now with deferrals in one and two years’ time is really important.

"It gives Southway financial certainty during these changing times and means we can continue to work towards our ambitious targets to deliver new homes in South Manchester and our vision of Thriving Communities.

“We are also really pleased the funding market has responded well to our sustainability offer, with strong green and social principles, which are at the heart of Southway’s strategic objectives and operations.”

David Clermont, CFO at Southway, said: “The excellent outcome and demand from investors is testament to the strength of Southway’s financial position and credit proposition.

"The money raised will finance the second half of our development strategy to deliver 1,600 much-needed new homes over the 10 years to 2025, enabling us to significantly outperform our original target of 1,000 new properties. 

“The interest rates secured are lower than assumed when we went to market and in our business plan, which means we can deliver more and be more competitive when bidding for future schemes. A great result.”

George Flynn, Debt & Financing Solutions at NatWest Markets, said: “NatWest is delighted to have supported Southway on this landmark transaction as sole Private Placement Agent and sole ESG Structuring Bank, which marks from our records the first Use of Proceeds Sustainable Private Placement in the Social Housing Sector. 

“Southway has a very strong ESG story, with targets to reduce its environmental impact, a transparent Zero-Carbon Strategy and a clear Community Investment Strategy focused around reducing poverty within Southway’s communities in South Manchester.

“Management clearly articulated Southway’s strong credit story to investors and addressed core questions from investors, which generated exceptionally strong levels of oversubscription and limited documentation changes.

“We’re excited that we can actively contribute to social, economic and environmental progress in the UK by supporting customers such as Southway and this transaction is a great example of our purpose in action, championing potential so people, families and businesses can thrive.”