One development corporate trust providers in the project finance market would love to see is a return of activity in the capital markets. And, to some extent – and largely thanks to the social housing sector – this appears to be happening.
Nicola Dale of BNY Mellon points out that the demise of the monoline insurers post-Crisis virtually stalled the project bond market. Now “people are tentatively moving back into the project bond space. But there are very few deals apart from those involving [UK] housing associations”.
Amid austerity and cuts in budgets, UK housing associations – which house more than 2 million of the poorer members of society – have been turning to the bond markets to diversify their sources of finance. This resulted in them raising some £4 billion (€4.7 billion; $6.1 billion) last year as investors warmed to the prospect of long-term, stable cash flows with a very low prospect of default.
Philip Rego, head of social housing at accountancy firm BDO told the Financial Times in February: “As long as the demand is there in the bond markets then the funding model for the sector will increasingly shift towards the capital markets model.”
Adds Dale: “In the UK there is a huge focus on the social housing sector. There have been 19 bond issuances and we’re agent in all of those. We understand that a number of these are debut issuers and we can help them through the process.”
Gary Webb of BNP Paribas says that such bond financings cater to an increasingly sophisticated investor base. “There are some big asset management firms such as BlackRock building teams of experienced infrastructure people who can ensure capital markets opportunities are carefully analysed to make sure the capital goes into the right assets with the right risk/return profile,” he says.