UNITE and Delancey jump on retail bond bandwagon

Delancey’s Alpha Plus schools arm plans first issue secured on property, while UNITE believes student housing strategy will appeal to bond buyers

Two more property-linked businesses are to raise debt in the rapidly emerging retail bond market. Delancey-owned private schools provider Alpha Plus is likely to launch a bond imminently, while student accommodation group UNITE launched a 6.125% retail bond last week.

The market’s emergence has been one of the year’s most exciting developments in finance, providing a welcome alternative to bank debt. Four property companies have tapped retail investors’ thirst for yield, raising £277.5m. UNITE aims to raise £50m-75m in the fifth issue since July.

The Alpha Plus offering is expected to differ in several respects. Most significantly, it is tipped to be secured on £84m of property; the other property company issues have all been unsecured.

A source with knowledge of the deal said: “The underlying value of the six schools and one nursery [backing the issue] is immense. Investors would be buying a bond from a small company but with very prime assets and not highly geared.

“As an operating company they don’t use the assets to generate income. Property companies do, so for them, it is useful to pay for the flexibility of unsecured finance.” Camaccord Genuity will be Alpha Plus’s lead manager for what is expected to be a seven-year bond priced at around 5.5%.

UNITE’s seven-year issue should appeal to retail investors “because of their, or their children’s, experience of student housing”, said chief executive Mark Allan. “We felt our story had appeal. Our yield, at six and an eighth, with a robust covenant  and compared with corporate bond yields of around 4%, is a good premium for the additional risk of it being unsecured.” Investec and Numis are joint lead managers.

UNITE aims to diversify its sources of capital, Allan said, pointing to the 10-year, secured loan it completed in May with Legal & General at 5% fixed. He said UNITE will use the bond to repay balance sheet facilities due to mature up to 2014. “We’d  like to get to 50:50 bank and non-bank borrowings.”

Retail bonds are usually listed on the London Stock Exchange Order Book for Retail Bonds (ORB) and the property issues so far have been trading around par (see table). With KKR, Delancey has just completed its first Irish deal this cycle, beating at least six other bidders by offering to buy the asset’s debt.

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