It has been great to attend the SFHA Finance Conference this week. A constant theme was market appetite to match short ended RCF type facilities from clearing banks for the purpose of financing new build development programmes with long ended DCM finance via private placements or similar. It would appear that there are several RSLs potentially targeting this approach as a means of delivering their development aspirations.

There seems to be an underlying assumption that as institutional investor appetite for RSL loan notes has to date been strong this will necessarily continue to be the case. Is there however certainty that this will be the case? Is there not a risk instead that RSLs may find the investor market closed?

Looking back to the position in 2014 at the time of the independence referendum, the bond investor market for Scottish issuance started to harden several months ahead of the referendum, with pricing hardening and the pool of investors narrowing. Ultimately, the investor market completely dried up and it took a number of months post-referendum for it to open up again.

There is potentially a risk of the same position applying in the context of Brexit, particularly in the context of uncertainty over the timing and specifics of a Brexit deal, and the possibility of a hard Brexit. Coupled with the recent rating downgrading of the UK housing association sector, there is a possibility that we may find the PP market tightening as we approach Brexit implementation with investors postponing investment decisions until the dust settles.

What’s the message here for RSLs looking at undertaking PP?. It must be to stick close to their financial advisers and to the extent possible bring forward their financing plans and related due diligence to ensure that they do not risk getting caught by a market containing a limited or non-existent pool of potential investors.