Phil Day, Group Finance Director at The Guinness Partnership, writes about his experiences of approaching the capital markets just prior to, and then during, the lockdown period.
In mid-March, our plans for a capital markets issue were well progressed. Our prospectus was nearly complete, security and valuations were in place, plans for three-day roadshows were emerging, diaries were blocked, our investor presentation was planned and investor targets were being identified. This was going to be the culmination of six months’ hard work preparing Guinness to raise funds from the capital markets for the first time since 2015.
And then everything changed – lockdown was introduced, global financial markets effectively closed for a few weeks, uncertainty clauses were introduced into valuations and face-to-face meetings were no longer allowed. Gilt yields were fluctuating daily in response to announcements made by central banks, and credit spreads had widened significantly overnight from levels seen earlier in the year.
What followed was a few weeks of agonising discussions around when the right time to re-approach the markets might be. At moments, these discussions included the option of not re-approaching the markets at all.
As things began to settle in early April, we realised that there might be a real opportunity for us to use all of the preparation we had done to our advantage. We began to have discussions about how best to take advantage of favourable market conditions whilst limiting risk exposure.
It quickly became clear that there was considerable pent-up demand for high quality, long dated, sterling bonds. We saw two transactions from Optivo and Sanctuary which served to demonstrate this and the appetite for housing association bonds in particular. These transactions helped us to shape our approach and gave us added confidence to proceed.
In the end we decided to issue a £350m, 35-year bond over a two-day period, which involved:
This was a different marketing approach to normal, but we felt no ill-effects of this – it felt like a highly efficient approach which enabled us to proceed in quite a nimble way in challenging but ultimately favourable market conditions.
We managed to price our £400m, 35-year transaction at a coupon of 2% with no new issue premium thanks to an order book of over £1.6bn.
As we will need to engage with the capital markets again in the future, our experience of issuing during lockdown will inform how we approach things as our default will definitely not be to just return to how things were done before.