Institutional investor finances Salford PFI housing project
Investec has arranged a deal, in which £82.6 million of 29-year bonds have been issued and placed to provide debt for Together Housing Group's new Pendleton Social Housing PFI project.
The new Pendleton Social Housing PFI project involves the design, financing and refurbishment of 1,270 existing dwellings, and their maintenance over a 30-year concession period, in the Salford area of Manchester.
Pendleton Together is owned by subsidiaries of Together Housing and has subcontracted the refurbishment works to Keepmoat.
The fundraising consisted of £71.7 million of senior notes and £10.9 million of junior notes. The coupon was set at 5.414 % and 8.35 % respectively, with the reference benchmark of government borrowing at 4.25 per cent.
Pension Insurance Corporation (PIC), a specialist provider of insurance solutions for defined benefit pension funds, was the sole investor in the £71.7 million of bonds backed by the project agreement with Salford City Council.
The bond PIC is buying is of investment grade quality and has been credit enhanced through the £10.9 million subordinated bond which has been placed by FHW Capital and subscribed by GCP Infrastructure Fund Limited, fund owned by Gravis Capital Partners (GCP) Infrastructure Investments Ltd.
Infrastructure debt is becoming an important asset class for pension funds and annuity providers as banks, under pressure from new banking regulations, are stepping back from funding long-dated credit. Previously, this type of transaction might have been completed by a bank or syndicate of banks, rather than an insurance company, such as PIC.
Mark Gull, co-head of Asset-Liability Management at Pension Insurance Corporation, said:
"As we continue to see an increasing flow of assets into our portfolio, growing significantly over the past 12 months, we are keen to continue sourcing long-dated, stable cashflows, which provide a decent return above risk free yields. This transaction matches those criteria."
Prashanth Satyadeva, a partner at Berwin Leighton Paisner, which provided legal advice, said:
'This is a publicly listed bond deal which has helped in opening up access to an increasing institutional investor appetite in project bonds without the need for a financial guarantee to protect against construction risk.'
Source: PIC & InfraPPP's research
