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Bond of the Week: 3 November 2017
Bond of the Week : 3 November 2017
Golden Lane 3.9% 2027
Golden Lane, a provider of housing in the charitable sector, has just launched a bond under the RCB umbrella. This is their second bond. The terms are:
I previously wrote on Golden Lane and you can find what I wrote here. As with the recent Hightown charity bond, little has changed since their first issue. However, it is worth a whirlwind recap.
GLH do not provide the care – just the housing. [Mencap is the largest (36%) but not sole provider of the care side]. As of March this year they had 1,645 tenants in 798 properties. These properties are spread round the country ( in over 100 local authority areas with approximately 50% in the North and 50% in the South). This leads to an increase in administrative costs compared (for instance) with Hightown which has a much more localised franchise. However, as GLH expand so there is increasing cost efficiency. I also understand that councils are aware of their higher cost base and are willing to pay a rent that allows for this.
GLH does have one advantage over Housing Associations. As their tenants have learning difficulties the housing benefit goes straight from the government to GLH without passing through anyone else hands. This compares to the new standard introduced under Universal Credit where the intermediation of the tenant into the flow of money (in order to engender responsibility) has allowed rent, on certain occasions, to go astray.
The issue size of this bond will probably finish at around £15 million. Its primary purpose is to pay off an existing private placement bond issued in 2013 with perhaps a few million put aside for further expansion. Some retained bonds will be issued to allow for further small scale fund raising.
Rental Income 11.3mil 12.4mil 13.6mil
Grants 0.2mil 0.2mil 0.3mil
Net surplus 1.7mil 1.75mil 2.56mil
Fixed Assets 85mil 89mil 90mil
Cash 4.9mil 7.4mil 8mil
Other Current Assets 0.8mil 1.15mil 1.14mil
Net Assets 24.36mil 26.11mil 28.66mil
With good reason Golden Lane is seen as particularly high scoring in terms of their positive social impact. The issue will certainly be well received by SRI (Socially Responsible Investing) funds. I expect demand relative to issue size to be good. But let's face it; GLH are offering to cross your palm with tin not silver. Considering the sound economic proposition there is some value left in this bond on a relative value basis but 3.9% is not much to write home about. With a ten year maturity there is plenty of interest rate risk.
Alea iacta est: at 3.9% the charity bondwagon has crossed the 4% Rubicon and is merrily trundling on to Rome in every expectation of a rapturous reception from the starry eyed virtue seekers of the SRI funds. But, we all have our personal Rubicons and I don't fancy getting my feet wet. Enough is enough and I shall not be investing. Instead I shall be ringing the bell and calling out, "Time gentlemen please!".
Oliver Butt is a Partner in City and Continental LLP, a leading independent broker in fixed income. The author and or the LLP may hold a position in or trade in any of the securities mentioned above.
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