£20m bond and bank debt refinance proves virtuous for Paragon

HBJ Gateley’s banking and social housing teams and RSM’s corporate finance practice advised Paragon on a £20 million refinance made up of a £10m bond from GB Social Housing and £10m of senior debt from Royal Bank of Scotland.

The deal broke new ground in the Scottish social housing market as the first bond and debt refinance at this level, giving Paragon access to substantial capital for investment.

Individual bond finance at this level has historically required a much more significant level of debt to be viable. In Scotland, this has meant that RSLs have had to club their stock together to be able to access bond finance, making this form of funding less attractive. The new availability of lower value bonds has now made this funding option accessible to the vast majority of RSLs in Scotland.

Susan McDonald, a partner in HBJ Gateley’s social housing team, said: “Social landlords in Scotland face the challenge of diminishing stock because of the right to buy, but increasing demand and the expectation of a very high quality of housing stock.

“That places huge demand on their resources, which means access to capital is critical if they are to develop or purchase new stock, or diversify into things like property management.

“This deal sends a message to the market that bond finance is available, banks are willing to lend into the sector, and there are opportunities for RSLs to invest in their models and deliver the volume and quality of housing expected by the market.”

Paragon Housing Association provides homes for social rent across the Forth Valley, and owns more than 1,400 houses and flats across Clackmannanshire, Falkirk and Stirling.

Tom Speirs, head of banking at HBJ Gateley, added: “Lower bond offerings and provision of bank debt is something which could be hugely beneficial to the Scottish social housing sector, particularly those RSLs who need capital for development and investment.

“We expect to see interest in this form of funding grow considerably over the coming year as RSLs adapt to a new funding environment and funders actively promoting their offering to the sector.”

Angela Toner, corporate finance partner at RSM, said: “We have worked closely with Paragon since its spin out from Scottish Homes and we are delighted to have secured this long term funding for the housing association. The deal could be a catalyst for future investment and diversification in the social housing market, which is great news for Paragon and the wider sector.”

Ian Sillars, head of housing finance in Scotland for Royal Bank of Scotland, said: “The Royal Bank of Scotland is delighted to support Paragon Housing Association.

“RSLs and housing associations are feeling more pressure than ever to deliver high quality housing stock for tenants and this package will allow Paragon to make further investment across the central belt of Scotland.

“As a bank we are keen to offer housing associations opportunities for investment and this programme announced today shows that by working together, solutions and opportunities are available.”