Metropolitan issues debut £250m bond at 167 bps spread and 4.2% all-in cost

| Corporate

Metropolitan has made its debut issue on the capital markets, through its subsidiary Metropolitan Funding plc, with the launch of a £250m bond – rated AA- by Standard & Poor’s – of which £100m was retained.

The own name bond was placed at a coupon of 4.125% and has a maturity of 30 years. It attracted bids from 21 investors, of which 20 were successful – a level of interest which indicated investor confidence in both Metropolitan and the housing association sector as a whole.

The issuance came after the organisation was assigned an AA- credit rating with stable outlook by Standard & Poor’s last week. In its rating document, S&P described Metropolitan’s “strong financial profile” and “improving operational performance, robust asset quality, detailed strategy, and experienced management team.”

Metropolitan is the first housing association to issue a bond since March. The organisation’s business plan included raising money in the capital markets this financial year.

The bond is the culmination of the organisation’s three-year turnaround plan, which has left it in robust financial health with a record £60.5m net surplus and an operating margin in the top quartile at 39%.

Brian Johnson, Metropolitan Chief Executive, said: “This debut bond is a huge milestone for us. The culmination of a three-year turnaround programme, it means that our development programme is secure and we can now deliver more much-needed homes at a time of chronic shortage.

“We were the first borrower out there in the post-Budget environment and are pleased with what we were able to achieve in terms of margin and overall price. The feedback on Metropolitan from investors was very good – the feeling was that we have a really good story to tell.”

Metropolitan owns and manages more than 38,000 homes across London, the East of England and the East Midlands, and will use the money raised to support the organisation’s development plan to build 3,300 new homes by 2019. Two years from now, the organisation expects to be delivering an average of 1,000 new homes annually.

Metropolitan was advised by a number of key advisers on the bond issue, with RBS and Santander acting as book runners.

David Mackay, Director in the Investment Grade corporate Bond Origination team at RBS, said: “The deal represents the first public test of the market for housing associations since the summer budget and gave investors a chance to ask questions around the expanded welfare reform changes.

“The response from investors was positive around the credit and, despite sector challenges, will provide some confidence for future issuers that the market is not closed.”