The retail market can seem a daunting place for some issuers, but Places for People, a UK-based, for-profit housing association, has found success on the London Stock Exchange’s retail platform, with its debut issue nearly trebling in size in the two months from its launch to close. The key to its success was a strong business model, an experienced retail firm and an intensive marketing strategy.

Places for People is one of the largest housing associations in the UK, with a portfolio of more than 60,000 properties across the country. Run as a for-profit enterprise, the group works with local authorities, providing rental accommodation for almost 200,000 people. But Places for People does not pay dividends, ploughing surplus cash back into the communities in which it works. 

Rated AA3, the group is financially robust and has tapped the bond market on several occasions, raising more than £850m ($1.41bn) in recent years in the UK and overseas. At the beginning of 2011, however, the group decided to consider an alternative.

“We spoke to the London Stock Exchange [LSE] about whether we would be a suitable candidate for the retail market. We thought it would be a good way of diversifying our source of funding and accessing a different set of investors,” says Places for People finance director Steve Binks. 

The LSE’s retail order book was set up early in 2010, offering individual investors a transparent trading platform where prices are clearly visible to both buyer and seller. The market has grown over the past 18 months but most new issuance has come from the financial sector. Nonetheless, LSE was confident that Places for People would be well received and the firm swiftly chose Evolution Securities, an experienced retail firm, to run the books.

Retail market myths 

Many issuers are reluctant to consider retail markets in the belief the documentation process is too demanding. But Mr Binks suggests otherwise. “The documentation was no more rigorous than in the wholesale market. In fact, we already had a medium-term note programme in place, established in 2007 and designed to be fairly flexible, so we were able to use most of the documentation from that for our retail bond,” he says.

The real difference between wholesale and retail issuance, according to People for Places, lies in the marketing process. “When you issue in the wholesale markets, you talk directly to investment managers. With retail, you talk to brokers and financial intermediaries,” says Mr Binks.

Tapping a new set of investors also involved a fair amount of education. Places for People was well-known to the UK institutional market but most intermediaries had not come across the group before. “The wholesale market knew us and was comfortable with our business model so for us the real work we had to do was getting brokers and independent financial advisers to understand what we do and how we do it,” says Mr Binks.

After mandating Evolution Securities at the end of March, Places for People began marketing in May, talking to brokers across the British Isles from Scotland in the north to the Channel Islands in the south. Fortunately for the housing association, markets were comparatively benign at the time. Even so, questioning was rigorous.

“People wanted to know what our business was about, how we funded ourselves and whether we would be affected by the UK government’s spending cuts. We were able to show them that our cash flow is good, we have a large stock of rental properties providing a stable income stream and a fundamentally strong business model,” says Mr Binks.

“Ultimately, we were able to tell brokers that our bonds offered a safe place to put investors’ money, they would be repaid and the coupons would be paid on time,” he adds.

First time success

The approach clearly worked. When meetings with intermediaries began on May 23, People for Places said it would be raising £50m via a five-and-a-half-year issue, paying 5% interest a year. Books officially opened two weeks later and within days the amount was raised to £75m. The figure then rose to £100m and by the time the books closed on July 23, a day earlier than scheduled, the issue size had been raised to £140m.

“We were surprised by the demand, particularly as we were new to the market, but the marketing effort obviously paid off and investors clearly thought 5% interest was attractive, compared to what they could get elsewhere,” says Mr Binks.

Many investors felt Places for People bonds had an ethical dimension too, and a number of charities subscribed for paper on this basis. 

Looking ahead, the group will almost certainly return to the retail market. “We can issue off the existing programme so we are looking closely at returning to the market and providing investors with a flow of different opportunities. If we had closed the books on time rather than a day early, we could have raised even more money but we deliberately left some demand on the table,” says Mr Binks.

Over the past few months, the bonds rose to a premium, trading at 103 by the end of August, suggesting Places for People can price more tightly next time.

“We knew we paid a little bit more in the retail market, especially as a new issuer, but we have gained more flexibility and diversification. We were very happy with the process,” says Mr Binks.

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