There’s a really nice retail bond doing the rounds at the moment which I think is definitely worth a closer look. My hunch is that it might go quickly but if you can jump on board in the placing, I think it’s a decent but boring long term investment. In essence, it’s a retail bond designed to fund a shared ownership resi programme. Fairly uniquely its an inflation-linked bond from a special purpose vehicle (SPV) run by an experienced player in the housing sector. I don’t propose to go into too much detail about this bond – better to read an excellent analysis of the new issue at  Truly first rate and very comprehensive – arguably in fact a little too detailed. The table below, also from Fixed Income investor, lists some of the key features of the bond.

Issuer Heylo Housing Secured Bond plc
Security Senior secured upon all assets of the Issuer to include fixed and floating
  charge over residential properties, cash, insurance and permitted investments
Currency GBP
Nominal Amount TBD
Repayment Adjusted for the increase in inflation as measured by the RPI (upward only,
  and at least par)
Early Redemption None
Coupon 1.625% (income is adjusted upwards to reflect the change in the RPI)
Coupon Dates 31 March and 30 September
Announcement (Launch) 08-Oct-18
Offer Period Until Monday 22 October at 3.30pm or earlier
Issue Date 29-Oct-18
Maturity Date 30-Sep-28
Issue price 100
Denominations GBP100 subject to a minimum initial subscription of £2,000
ISIN Number XS1880955007
Listing LSE Main Market, Order Book for Fixed Income Securities
Asset cover test of 1.2:1.0
A debt service cover ratio of 1.1:1.0
Negative pledge
Information covenant (to produce an analysis of portfolio assets)


You can find out more about the bond HERE

The big picture here is important.

We do have a housing crisis in the UK but its less a supply crisis, more an affordability one. I’m not entirely convinced that we need to concrete over vast swathes of the greenbelt – bits of it maybe, around new towns – in order to build yet more executive starter homes. What we actually need are lots and lots of houses and larger flats for middle-income public sector workers and those more generally on low incomes. The solutions to this affordability crisis are many and complicated. Elements of the plan include some or all of the following:

  • An expansion of proper social housing for rents 50% below the market
  • More affordable housing at around 80% of market rents
  • More shared ownership as a stepping stone to wider home ownership
  • Social tenants need to be able to buy their homes but any capital raised should be 100% recycled back into new build programmes
  • Coordinated master plan developments of many thousands of new homes around a reshaped urban development Corporation model
  • Better and quicker use of public sector land
  • A proper land value tax
  • Stronger powers for public bodies to capture the planning gain uplift on developed land

Notice that my list contains no mention of Help to Buy which I think is one giant middle class subsidy – when government’s have to make hard choices about who to help. In my book this programme is a shameless rip off and should be shut down immediately – how supposedly free market Conservative’s can claim to support this is an absolute mystery me.

Anyway, suffice to say that shared ownership is one, small, piece of the jigsaw – and this retail bond will help one regional provider ramp up their programme of acquisition. I do have my concerns about the share ownership structure, particularly the RPI linkage to the rental element which strikes me as potentially deadly. But overall, I think this is a useful and valuable part of the solution.

Crucially for the investor, this is a relatively interesting investment proposition. The nominal amount is ROI (upward only, crucially) linked with a coupon of 1.625%. That coupon is much higher than peer issues, but this is arguably a riskier lender. It’s a new entity, an SPV, in a sector that has some policy risk. But the security against property is deep and strong and the business behind the SPV knows its regional market well.

I’m not an inflation hawk so I don’t think that inflation insurance is a paramount requirement for diversified portfolios, but I do think the UK will probably have a persistent 3 to 4% RPI inflation rate long term – as indeed it has over the last few decades. If I’m right and RPI inflation rates stay around 3%, the nominal redemption amount on this 10-year note will £134 per note. On top of that, you’ll get that annual coupon.

So, in sum, if you are a cautious investor looking for some lock away insurance style investments, this new retail bond will probably tick most boxes. My hunch is that it’ll be over subscribed and might even trade at a small premium.