UK-based Hexagon Housing Association has managed to gain strong demand for a debut bond in a week that is set to see a usual seasonal slowdown in supply ahead of the Easter holidays.
The social housing provider (A–, S&P) had the market to itself on Monday and landed a 26-year sustainability bond at mid-Gilts plus 167bp, capped at £250m on books of over £1.025bn at guidance.
"The issuer has marketed the deal for quite some time and most of the decision-making from investors must have been already finished last week. The majority of the market functions happily during holidays, although one or two might be on the ski slopes," said a syndicate banker. Hexagon started investor calls for the offering on Wednesday last week via NatWest Markets and Santander.
"The deal probably priced at the wide-end of bonds from the same space, but it's not a big housing association so it's helpful for the overall market to see the debut issuer getting the deal done," he said.
The inaugural nature of the notes made it difficult to derive fair value, but comparables included bonds from other housing associations like Saxon Weald's (A3, Moody's) 5.375% June 2042s and Chelmer Housing Partnership's (A–, S&P) 4.75% December 2043s that were bid at 150bp and 139bp, respectively. Notting Hill Housing Trust's (A3/A–/A) 3.25% October 2048s and 4.375% February 2054s were bid at 124bp and 127bp.
Initial price thoughts were 180bp–185bp before guidance was tightened at 170bp–175bp.
Hexagon is looking to fund its upcoming investments in existing and new projects, including social and affordable housing.
"Sustainability bond have become almost a default structure in the housing association space with the vast majority coming with the label last year. It fits hand in glove with the sector that has environmental and social objectives," said an ESG banker.
"You get more of a hearing from investors by printing a debut issue in sustainability format, while investors could simply pass a transaction if a credit is new. By no means, it’s a guarantee, but it does help."
Hexagon's trade comes in a week with a narrowed issuance window as Easter holidays start on Friday.
"This week is going to be really quiet. Traditionally, ahead of Easter, we see less supply and there's a lot of people away on the UK-side for holidays, so there is just less liquidity," said a second syndicate banker.
A third syndicate official said: "We also have ECB meeting this Thursday and it's also reporting season, but if the market is stable, there will be a bit of activity on Tuesday and Wednesday."
UK-based integrated utility SSE is preparing for a hybrid offering with expected ratings of Baa3/BBB– (Moody’s/S&P), with pricing earmarked for tomorrow while German Alstria Office REIT-AG (BBB–, S&P) has hired banks for a proposed two-year senior note with an expected size of €350m. Proceeds will be used for share buyback.
"Raising debt to pay out shareholders is not something that has never happened before, but that's probably why they are going short with a small size," said the second syndicate banker. "It's also owned by a private equity firm and in the real estate sector, but they have nice assets."
Brookfield Strategic Real Estate Partners IV holds 92% of Alstria's share capital, according to S&P. The rating agency said its stable outlook on the German REIT reflects solid demand trends in the German office market for good quality assets in metropolitan areas as well as the company's robust and stable cash flow.