Paradigm issues debut £350m sustainability bond to deliver much-needed homes and meet net zero commitment

Paradigm Housing Group has this week issued a £350m sustainability bond to support its ambition to invest in good quality, safe and energy efficient homes in the south-east of England.

The funding marks Paradigm’s first ever issuance in the public bond markets and follows the housing association’s creation of a Sustainability Finance Framework, which embeds environmental, social and governance (ESG) factors into its strategy. Paradigm, a not-for-profit registered provider of social housing, is one of the leading providers of affordable housing in the South East, managing over 15,000 homes.

Over the last 30 years, Paradigm – a housing association formed through the very first large scale voluntary transfer of homes from Chiltern DC to Chiltern Hundreds HA – has become one of the largest social housing providers in the counties of Buckinghamshire, Hertfordshire and Bedfordshire.

A central part of Paradigm’s vision is to build much-needed affordable housing to help more people, while investing in safe and sustainable homes.

Issuing a sustainability bond under Paradigm’s recently established framework reinforces Paradigm’s commitment to becoming a net zero carbon business by 2050, in line with the objectives set out in its recently published Corporate Plan 2021-26.

Paradigm priced its debut 30-year bond on Wednesday (12 of May 2021) at a coupon of 2.250%, with £250m of bonds sold to investors in the first instance, and £100m of the proceeds retained for later sale, as and when the group requires the further funding.

The £250m of bonds were priced at a spread of 88 basis points – or a margin of 0.88% – over the government cost of borrowing, known as gilts. That resulted in an all-in cost of just 2.279%.

The transaction attracted strong engagement from investors, with the bonds being three times oversubscribed and investors placing £795m worth of orders.

Nicola Ewen, Executive Director of Finance at Paradigm, said: “We are pleased to have issued our debut sustainability bond to support our newly published corporate plan. The rating we received and the feedback on the issue reinforces our financial strength, strong management and our commitment to building and investing in safe and sustainable homes in our operating area.”

Matthew Bailes, Chief Executive at Paradigm, said: “The feedback we got from investors and the margin we achieved reflected the strength of the business and the grip we have on efficiency, risk, development and operational delivery.”

The bond, which forms part of a wider refinancing, gives Paradigm a strong long-term foundation to deliver on its main objectives set out in their new corporate plan, such as providing new homes focused in their core operating areas of Buckinghamshire, Bedfordshire, Hertfordshire and eastern parts of Oxfordshire. It also provides investment for existing homes, with the aim of making Paradigm a net zero carbon business by 2050.

Paradigm will publish an annual report disclosing the use of bond proceeds, which will be made available on the group’s website.

The bond comes after Paradigm was awarded an A+ credit rating, with a stable outlook, by Standard & Poor’s (S&P). An A+ rating is one of the stronger ratings in the HA sector, with S&P observing that it is “underpinned by the group’s focus on affordable development, strong demand for the group’s units stemming from its geographical footprint, and its excellent asset quality”.

S&P also remarked on the group’s very strong liquidity and robust operating margins, with financial performance expected to remain solid despite the commitments to increase investments in the energy efficiency of the group’s existing homes.

Bookrunners on the bond included Barclays, Lloyds and NAB.

Centrus acted as financial advisors, with Trowers as legal advisors to Paradigm, Pinsent Masons providing legal advice to the joint bookrunners and JLL conducting the valuation.

Lawrence Gill, Director at Centrus said: “It was a pleasure working with Paradigm on this landmark bond issuance – Centrus is committed to sustainability and ESG and we’re thrilled to be part of Paradigm’s first foray into Sustainability Financing, allowing the group to align its financing with net-zero targets and wider corporate strategy. Additionally, we are delighted to have structured the refinancing for Paradigm who will benefit from a lower cost of debt, improved asset efficiency and less restrictive covenants.”

Trowers & Hamlins Partner Adrian Carter said: “We are pleased to have advised Paradigm on their landmark sustainability bond. Creating places where communities can thrive and building homes that are sustainable is high on our agenda at Trowers and working on this project has been extremely rewarding, given the direct impact it will have.”