Alpha Plus to reopen retail bond market for real estate

Alpha Plus, the private schools group advised by Delancey, has launched a retail bond with a 5% coupon in the first issue backed by property for more than two and a half years.

There has been no new retail bond backed by real estate since July 2013, when Bruntwood Investments, the Manchester-based private property company, raised £50 million.

Alpha is raising eight-year, secured debt and will list the bonds on the London Stock Exchange’s Order Book for Retail Bonds (ORB).

Unlike most of the other issues backed by property, it will be a secured rather than an unsecured issue, with five schools and two nurseries with a trading value of £108.8 million providing the initial security, and the assets’ value amounting to at least 1.5x the amount of the bonds.

The retail bond market makes bond investments accessible to retail investors and has a low minimum subscription size; Alpha’s minimum amount is £2,000.

Eight mid-sized property companies accessed the market between July 2012, when Primary Health Properties raised £75 million, and Bruntwood’s July 2013 issue. The others were: CLS Holdings, Helical Bar, St Modwen Properties, Unite Group and Workspace Group.

With no new issues recently, Alpha’s will be a test of the market, but this is the group’s second issue. Its £48.5 million first retail bond was also secured and has traded consistently at a premium to its 5.75% issue price since it listed on ORB in December 2012.

The 5% coupon on the new issue is the lowest so far of any by a property company; PHP’s was the previous lowest, at 5.375%.

The size of the latest issue will be determined between the opening offer period and closure which is expected by 23 March. According to ORB, the issue size could be up to £130 million, which would require further security.

Canaccord Genuity and Peel Hunt are acting as managers.

Alpha Plus is owned by DV4 Ltd which is advised by Delancey, the property investor headed by Jamie Ritlbat. Alpha owns and operates 18 private schools, nurseries and colleges on a mix of freehold and leasehold tenures, valued on the basis of current use at £240 million.

As 13 are located in central London,the group says “many have significant value, particularly given that they benefit from rarely awarded and highly valued D1 educational use planning consents.”

The net proceeds from the latest issue will be used by the company in part to repay £34.1 million of shareholder debt owed to DV4 and the excess for corporate purposes.

ORB launched in 2011 when bank finance was harder to get and more expensive and the institutional bond markets were difficult to access, especially for unrated or mid-sized companies. The number of issues on ORB across asset classes slowed in 2014 and 2015 as bank liquidity improved and the cost of bank finance became cheaper.