Glasgow finance firm seeks to raise £1bn for social housing lending bonds

A NEW financing firm aims to take advantage of turmoil in Europe to raise £1 billion to lend to social housing providers. Glasgow-based Carduus is launching a £200 million bond in November and has about 20 social landlords signed up. The company intends to launch further bonds at intervals over the following months.

Brian Gilmour, managing director, said the firm would raise bonds on low rates based on UK gilts which have been considered a safe haven by investors during the Eurozone crisis. He said: “The challenges facing the Eurozone have had a positive impact on the interest rates we are hoping to achieve. UK gilt rates have been coming down in recent weeks.”

The concept of tapping bond markets to fund affordable house building has become commonplace in England as bank lending terms have tightened following the banking crisis. Registered social landlords (RSLs) – including some in Scotland – have had access to bond issues led by the public Housing Finance Corporation, while larger RSLs have been able to access the market directly.

According to a report in Insider Housing magazine, a number of RSLs in England and Wales have raised hundreds of millions from bond markets including Amicus Horizon, Circle and Radian.

Andrew Meakin, a debt and structured finance partner with law firm Morton Fraser, said Carduus’ sole focus on the Scottish market could make lending more expensive for social landlords as the Scottish independence debate heats up. Meakin said: “I can’t predict how the investor side of the market will evaluate it – but there might be a pricing consequence because of the political uncertainty that will have to be covered off in a bond prospectus.”

This month, ratings agency Moody’s put a series of social housing bond issues in the UK on “outlook negative”, including £250m bond issues, each from Sovereign Housing Association and East Thames Group. The downgrade means that lending becomes more expensive for social landlords.

Gilmour said: “The smaller single issuers in England have the challenge of the ratings agencies taking a different view. The way we are structured matters – we are going to the wholesale market, with £150m to £200m per bond issue. You get economies of scale.

“We think we have the right balance between not having too many or too few housing associations.

“In terms of giving comfort to the City for getting the best rates you can, the investment buyers still have a lot of confidence in housing bonds.”

Kate Dewar, a social housing legal specialist at Morton Fraser, said there were 350,000 people in Scotland seeking social housing or to change their tenure of housing. She said: “This parliament has said it is committed to building 30,000 houses in the lifetime of the parliament – they built 6,000 to 7,000 last year. The biggest issue in social housing is how do you fund more houses.”