Supporting Older

People Conference

B27: Financing mid-sized and smaller

housing associations

Speakers: Dr Howard Webb

Director Sector

Jason Oakley

Director, Commercial Banking Metro Bank

National Housing Federation Finance Conference

March 2013

Financing Mid-sized and Smaller Housing Associations Breakout Session B26

{Financing mid-sized and smaller housing associations | March 20I3

1. Future of bank lending – who’s hot and who’s not

2. Capital markets – how big do you need to be to issue bonds directly

3. Other routes to the capital markets

4. Direct lending by institutional investors

4

Number of units or funding requirement?

For the purpose of this presentation only

A mid sized housing association is one with a borrowing requirement of £30 -£100 million

A small housing association is one with a borrowing requirement of less than £30 million

A problem of definitions

5

The usual suspects

• RBS/Lloyds/Nationwide/Santander/Barclays

• Balance sheet constrained

• Funding costs high

• Back book underwater

• No more long-term funding

6

Typical terms

• Margins 2.75% plus

• Arrangement fee – 0.50% to 1.0%

• Commitment fees – half of margin

• Maximum term 5 years

• Maximum deal size - £ 50 million

• Hedge premia – 0.25% to 0.30%

• Special deal – Funding for Lending

7

Bad behaviours

• New money comes with

− repricing of existing loans − And /or shortening of maturity

• Introduction of 5 year margin review clauses

• Business plan approval getting more difficult

• Consents at a price

• Hedging as a means of profit extraction

New bank lenders

• Yorkshire Building society − Old friend − Renewable annual pot

• Clydesdale/Yorkshire bank

− Now you seen them now you don’t

• Triodos

− The “ethical bank”

− Have you got an angle?

• Metrobank

9

The debt capital markets

• Own name bonds – Large borrowers

• Aggregating vehicles – all borrowers

− THFC – tried and tested route to market − GB Social Housing – new entrant

• Direct lending -£30 million plus

• Private placements - £50 - £100 million

RSL bond issues in numbers - 2008-2012

10

• Total RSL bond issuance - £4.9bn

• Total THFC bond issuance - £0.9bn

• Total number of RSL issuers -20

• Total number of THFC issues- 9

• Weighted average RSL issue yield -5.52%

• Weighted average THFC issue yield – 5.53%

• RSL average issue amount -£192m

• THFC average issue amount - £105m

2012 issuance

11

Issuer Rating Issue date Nominal Issue Yield

Issue

spread

£m % %

THFC Funding No3 A+ * 01/12 £131 4.94% 2.00%

Circle Anglia Aa3 03/12 £250 5.22% 1.98%

Radian Aa2 03/12 £75 6.03% 2.75%

Amicus Horizon Aa3 03/12 £100 5.36% 2.15%

Hastoe Aa3 03/12 £100 5.63% 2.15%

Sovereign Aa2 06/12 £250 4.54% 1.70%

Saxonweald Aa3 06/12 £225 5.34% 2.48%

East Thames Aa3 06/12 £250 5.49% 2.50%

Longhurst Aa3 07/12 £250 5.25% 2.42%

Affinity Sutton Aa2 09/12 £250 4.25% 1.25%

Midland Heart Aa2 09/12 £150 5.09% 1.96%

THFC Funding No3 A+ * 09/12 £127 5.00% 1.88%

Great Places Aa3/AA- ** 10/12 £150 4.81% 1.70%

WM Housing Group Aa3 11/12 £160 4.63% 1.55%

Together Housing Group Aa3 12/12 £200 4.58% 1.45%

Notting Hill Housing Trust Aa3 12/12 £250 3.78% 1.08%

Total £2,918

Average 5.00% 1.94%

Maximum 6.03% 2.75%

Minimum 3.78% 1.08%

12

Private placements

• No credit rating required

• Deal size £50 million or more

• Bespoke term and repayment structure

• Total fees lower than bond issue

• Higher credit margin, but potentially lower all-in costs

• Growing no of deals(Catalyst, MHT, First Wessex, Bromford, Newlon)

• Limited disclosure

13

Other funding sources and structures

• Legal & General, M&G, Scottish Life insurance companies

• Similar to private placement, but with no middle-man

• Minimum loan amount £30 million

• Direct negotiation with long-term investor

• Bespoke term, repayment and interest structures

• Bespoke financial and security covenants

• Higher credit margin, but potentially lower fixed rate

• Greater certainty on pricing

14

Other funding sources - Sale and leaseback

• Minimum amount circa £30 million

• Asset specific − Identifiable property portfolios − Need to be in good condition − Geographically concentrated

• Borrower takes − All demand/rental risk − Long-term bet on rent inflation − All management/major repairs risk

• Genuine long-term capital 30 to 40 years

• RPI link – cap at 5%, floor at 0%

• Off or on balance sheet?

15

Government guaranteed borrowing

• New development only

• Minimum loan £10 million

• Covenants not yet known

• Cost uncertain but existing Govt guaranteed borrowers give guidance

• Competition for grant but levels likely to be lower that 2011-15 programme

• Very tight delivery schedule

16

In summary …….

Bank debt

− In short supply for both medium and small borrowers

− High margins and with strings

− Generally only short term

Capital market (and variations thereof)

− In good supply for both medium and small borrowers

− Relatively “Cheap” at the moment

− Increasing competition between lenders

NHF Housing Finance Conference

Breakout Session B27

Jason Oakley – Managing Director

March 2013

Metro Bank – Ethos

“Amazing the Customer means providing

unparalleled Customer service, making sure every

transaction goes quickly and smoothly. It means

fulfilling Customer needs, even anticipating them.

More than that, it means turning Customers into

FANS. We want them to tell their family members,

friends and business associates about the

products and superior services we provide.”

- Vernon W. Hill, II

• Britain’s 1st new High Street

Bank in over 100 years

• 7 days a week / 361 days a

year in-store banking

• Across London with 16 stores

and growing

• Target 200+ stores in London

& South East

Metro Bank – Growth

Metro Bank – Coverage

• Focus on London & South East

• We will lend as far north as Northampton, Cambridge

and Banbury, and as far west as Newbury and

Southampton

Metro Bank – Customer Service

• Unrivalled Service & Convenience

• 97% of Customers recommend us

• Retail, not banking, mentality

• Based on blueprint of world renowned Commerce Bank

in US

Metro Bank – Social Housing

• Metro Bank – new entrants to Social Housing finance

market

• Focus on smaller HAs in London & South East

• Long term committed loan products

• Develop strong and broad relationship with HAs

Debt Finance

Deposits

Day to Day banking

Typical Loan Offering in HA Sector

• 25 year committed term loan facility

• Amount: Up to £10m

• Availability Period: Up to 24 months

• Asset Cover: 115% EUV-SH & 130% MV-STT

• Covenants:

• Interest Cover – Annual & 3 year rolling

• Gearing – Traditional

• Treasury Management: Ability to fix interest rates

Metro Bank – Deposits

• Competitive rates for Instant Access and Fixed Term

Deposits

• Fully authorised by the FSA, having met all of their new

Capital and Liquidity Requirements

• We have many times the “Tier 1 Capital” we need.

• We are members of the Financial Services

Compensation Scheme (“FSCS”) and contribute to the

“safety net” fund

• We invest only in safe and highly rated government

debt (Gilts) and other highly rated investments. We do

not speculate (“Casino Banking”)

Metro Bank – Broader Offering

• Agreed pilot for Shared Ownership mortgage initiative

in London boroughs

• Basic Tenant Bank Accounts

• Staff bank accounts

Metro Bank – Contact Details

Jason Oakley

• Managing Director – Commercial

• Email: jason.oakley@metrobank.plc.uk

• Mobile: 07950 831 317

Julie Barnsley

• Head of Not for Profit

• Email: julie.barnsley@metrobank.plc.uk

• Mobile: 07961 587 280

Craig Wilson

• Commercial Banking Director

• Email: craig.wilson@metrobank.plc.uk

• Mobile: 07950 831 398

Supporting Older

People Conference

B27: Financing mid-sized and smaller

housing associations

Speakers: Dr Howard Webb

Director Sector

Jason Oakley

Director, Commercial Banking Metro Bank