Major G15 landlord L&Q has become the latest housing association to launch its own Euro-Medium-Term Note (EMTN) programme, with a view to gaining speedy access to the capital markets.
In late September 2019, 37,000-home provider LiveWest became the latest association to pursue the model when it established its £1bn secured platform, from which it issued a £250m 24-year bond in October.
Places for People, A2Dominion and Clarion also have EMTN programmes, currently standing at £1bn, £3bn, and £2bn respectively, with PfP and A2D both issuing on an unsecured basis.
Other housing associations in the sector have also mulled launches of their own.
Platform Housing Group revealed in December that it was considering the move, although it chose to capitalise on market conditions with its record-breaking £350m debut bond earlier this summer ahead of launching its programme.
Today’s offering circular shows that L&Q’s programme will use NatWest Markets as the sole arranger, with a number of banks acting as dealers, including recent entrants to the sector such as National Australia Bank and Bank of China.
Commenting on L&Q’s decision to launch the programme, Martin Watts, director of treasury at the group, told Social Housing: “What the EMTN programme does is provide L&Q with a versatile platform that increases our financial agility. It potentially allows us to issue secured or unsecured notes to the debt capital markets in a very short time period because the majority of the upfront work is done.”
Last week, L&Q’s group finance director Waqar Ahmed heralded a “year of stability” in its last financial year as the group published its 2019/20 accounts. Operating surplus for the year was £279m, compared with £305m the previous year, as extra costs including those related to fire safety works hit the group, but Mr Ahmed said the financial position was beginning to improve again.
In affirming L&Q’s A3 ratings today, Moody’s cited L&Q’s “responsive financial strategy and risk management, its strong balance sheet and social housing lettings interest coverage and its good liquidity coverage” – with around £900m in “immediately available liquidity as of 31 August 2020”.
However it noted a “large development programme, with very high though declining levels of exposure to market sales, significant volatility in its cash flows and high debt to revenues metric”.
Moody’s said that L&Q had “acted quickly to respond to the impacts of the coronavirus pandemic”. This included adjusting its financial plan and deferring £300m of capital expenditure, £66m of discretionary operating expenditure, and reprofiling its development programme by “reducing turnover and profits from outright sales by 50 per cent in FY2021 and fixed asset disposals by 30 per cent”.
Referring to the EMTN programme, the agency said that it does not consider a “material difference in credit quality between secured and unsecured debt due to Moody’s view that there would be a similarly high level of recovery for secured and unsecured debt in an insolvency situation”.
Fitch said in its rationale that it views L&Q’s liquidity management as “sound” and believes “L&Q will be able to provide sufficient liquidity coverage for its forthcoming issuance under the programme”.