Manchester housing association agrees £120m ESG-linked private placement

The "sustainable use of proceeds" deal will help 6,300-home landlord Southway Housing Trust achieve its targets across its ESG work.
Image 3 Southway 64 affordable homes in Withington

The Manchester-based housing association Southway Housing Trust has agreed a £120 million private placement, the first in the social housing sector to be linked to the delivery of sustainable outcomes.

The “sustainable use of proceeds” deal will help the 6,300-home housing association achieve its targets across its Environmental, Social and Governance (ESG) work.

Demand from investors was so high that the size of the bond increased from the £85 million launch amount, with the order book six times oversubscribed.

Southway Housing Trust has set the target of becoming a net zero carbon organisation by 2038, in line with Manchester City Council’s target.

The private placement, agreed with institutional investors from North America and the UK, will also help Southway deliver its 1,600-home development plan and reduce its cost of debt.

Karen Mitchell, chief executive at Southway, said: “We are delighted with the outcome of the private placement. Obtaining funding now with deferrals in one and two years’ time is really important. It gives Southway financial certainty during these changing times and means we can continue to work towards our ambitious targets to deliver new homes in South Manchester and our vision of Thriving Communities.

“We are also really pleased the funding market has responded well to our sustainability offer, with strong green and social principles, which are at the heart of Southway’s strategic objectives and operations.”

Sotuhway Housing Trust is a co-operative and community benefit society and a registered social housing provider. It is based in Didsbury, managing 6,300 homes across South Manchester.

Under its zero-carbon strategy, Southway plans for all its new homes to meet an Energy Performance Certificate (EPC) rating B or above.

It also aims for all its fuel-poor households to be at EPC C or above by 2030, and for all its existing homes to be at least EPC C by 2035.

By 2025 it plans to have no gas heating in its new homes, for all heating programmes to its existing properties to be non-gas, and to fully electrify its vehicle fleet.

The housing association aims to reduce poverty within its communities and has committed to invest at least £1 million per year in community and social service-related projects.

Southway becomes the latest housing association to secure an ESG-related bond after North East landlord Beyond Housing issued a £250 million 30-year ESG bond earlier this year.

David Clermont, CFO at Southway, said: “The excellent outcome and demand from investors is testament to the strength of Southway’s financial position and credit proposition. The money raised will finance the second half of our development strategy to deliver 1,600 much-needed new homes over the 10 years to 2025, enabling us to significantly outperform our original target of 1,000 new properties.

“The interest rates secured are lower than assumed when we went to market and in our business plan, which means we can deliver more and be more competitive when bidding for future schemes. A great result.”

Southway Housing Trust was supported in securing the private placement by Savills Financial Consultants and NatWest Markets.

Mike Roche, director at Savills Financial Consultants, said: “This deal is important for a number of reasons. First, it helps Southway Housing Trust to ensure it can continue to be successful in its mission of improving housing choice for the people of South Manchester and the nearby areas.

“Second, it demonstrates the ongoing size of investor appetite to work with housing associations. Third, it shows the importance of being able to clearly communicate how your investment will help achieve specific environmental, social and governance goals. We are very pleased to have been able to support Southway to achieve such a strong result.”

George Flynn, debt & financing solutions at NatWest Markets, said: “NatWest is delighted to have supported Southway on this landmark transaction as sole private placement agent and sole ESG structuring bank, which marks from our records the first Use of Proceeds sustainable private placement in the social housing sector.

“Southway has a very strong ESG story, with targets to reduce its environmental impact, a transparent zero-carbon strategy and a clear community investment strategy focused around reducing poverty within Southway’s communities in South Manchester.

“Management clearly articulated Southway’s strong credit story to investors and addressed core questions from investors, which generated exceptionally strong levels of oversubscription and limited documentation changes.

“We’re excited that we can actively contribute to social, economic and environmental progress in the UK by supporting customers such as Southway and this transaction is a great example of our purpose in action, championing potential so people, families and businesses can thrive.”

Image: A Southway Housing Trust development in Withington, Manchester. Credit: Southway Housing Trust.

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