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

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.