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Case Study

£150M private placement and A+ credit rating for Octavia Housing

Summary

A case study of how Chatham advised London housing association Octavia on its £150M private placement, to facilitate the development of new homes.

Background

  • Octavia Housing is one of the oldest social housing providers in the UK, founded over 150 years ago, owning over £2B of property in central and west London.
  • Octavia planned to build more homes in central and west London for which it required funding.
  • Existing bank facilities restricted further funding needed for development, requiring renegotiation.
  • Octavia faced either a full-scale refinancing resulting in termination costs, or a staged approach restructuring certain facilities, while repaying others.
  • Octavia was seeking cheap, long-term funding to replace restructured and maturing debt, as well as for new development over the medium term, so did not require to draw the full amount initially.

Our Approach

  • Chatham acted as Octavia’s treasury adviser for three years, providing regular treasury advice and supporting various strategic initiatives.
  • Chatham initially compared the options of full refinancing (possibly funded by a public bond issue); and a more staged, negotiated approach.
  • Octavia embarked on a staged refinancing including initially raising a new revolving credit facility (RCF), renegotiating two long-term loans, repaying two existing lenders, and culminating in a private placement.
  • Chatham supported Octavia and its board throughout this process and assisted Octavia in obtaining an A+ (stable) rating from S&P, a great achievement at a time when a number of larger HAs were downgraded.
  • Chatham advised on the selection of the private placement agent (Santander), as well as encouraging the inclusion of US investors to create competition in terms of pricing and terms.

Benefits

  • Octavia was able to secure £150M from private placement investors in the UK and U.S., enabling repayment of certain bank facilities, as well as providing capital for development for the next five years.
  • Multiple deferred draw-downs stretching over three years enabled Octavia to reduce negative cost of carry, matching drawings for development as and when required.
  • The credit rating, along with the inclusion of U.S. investors, resulted in an extremely competitive bidding process (3x oversubscribed), with an average margin of 161 basis points (3.5% all-in), with no public market or new issuer premium.
  • The maturity profile ranged from 25 to 40 years, mitigating the impact of refinancing risk.
  • Innovative structure including U.S. and UK investors, enabling diversified funding sources from two markets, through one issuance.

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Disclaimers

This material has been created by Chatham Financial Europe, Ltd. and is intended for a non-U.S. audience. Chatham Financial Europe, Ltd. is authorised and regulated by the Financial Conduct Authority of the United Kingdom with reference number 197251.