Lender THFC makes a comeback with £67.4m bond issue

Specialist social housing lender the Housing Finance Corporation has announced a £67.4m bond issue.

The bond issue, plus a number of multimillion-pound deals signed earlier in the year, have re-established THFC as a significant investor in the sector after an 18-month period in 2002/3 when it completed no major deals.

THFC raises money by issuing bonds in the capital markets and then lends the proceeds to housing associations.

The coupon – or annual interest cost – is 5.125%, which is almost half the 8% to 11.5% rate associations paid on previous deals with THFC. The loans also allow a higher ratio of debt per property used as security than with THFC loans of the past.

Five of THFC’s existing customers switched from their old deals to the new bonds when the deal was launched on Monday. They were: Acton Housing Association and Cherwell Housing Trust (now both part of Dominion Group); Wandle Housing Association; Knightstone Housing Association; and Wales & West Housing Association.

Interest rates on the loans also compare favourably with similar deals where several housing associations raise money together by having a bank do a bond issue for them.

Rates of about 5.28% to 5.37% are common for these deals.

Investors were convinced to swap from the old to the new bonds, despite lower returns, because of the deal’s high credit rating. The ratings agency Standard & Poor’s has awarded the THFC bond issue an AA- rating.

The 31-year life of the deal was also attractive to pensions and life insurance firms, which prefer long-term investments.

The financial conditions borrowers must hold to under the new loans are more relaxed.

Borrowers also said they were saving significant sums in interest repayments on the new deals, even when redemption fees for ending the old loans were taken into account.

Wandle, for example, will save about £250,000 a year. It borrowed an extra £6m on top of an original £15m loan, which was refinanced through the new deal.

Malcolm Wilson, Wandle’s finance director, said: “It was just a good deal. We are saving quite a bit of money.

“Also we have drawn down some more money as we had free security. It makes better use of our security.”

He said he would consider borrowing more from THFC in future using the new loan terms.

Piers Williamson, chief executive of THFC, said there were likely to be further bond issues to cover more deals.

He said: “I would hope we will be out in the market two to three times next year.

“We have quite a wide customer base so the majority of borrowers will come from our existing base, but we hope it will attract new borrowers and we have been talking to some.”

Earlier this year THFC was awarded an A+ credit rating by Standard & Poor’s (HT 2 July, page 14).