Privately Financing Rail Infrastructure: a pipeline or a pipedream?

A pipeline or a pipe dream?

Responses to the initial call for evidence for the Williams Rail Review are being submitted and the rail industry is awaiting the findings which are due to be published in Autumn 2019. The Rail Review is far-reaching and makes for a complex task for independent chair, Keith Williams, and his team if they are going to make recommendations for meaningful change.

As the industry awaits its conclusions, this paper considers a question that has been posed multiple times yet remains pertinent to all the principles set out in the Rail Review’s terms of reference:

Can there be a role for private finance in the delivery of UK rail infrastructure and, if so, how can a pipeline of opportunity be created?

Download our whitepaper below…

For more information, please contact Stephen Layburn, Managing Director – Centrus

Social Housing funding: no longer a ‘one-size-fits-all’

No longer one size fits all

As we move further into 2019, one of the big picture trends we are seeing in the UK social housing sector is a real diversification of funding strategies and sources. Pre-2008, with one or two exceptions, banks had a near monopoly on lending to housing associations via long term facilities and embedded or stand-alone swaps. The period between the global financial crisis and 2018 (again with notable exceptions in US and other currency PPs and a handful of retail bonds) saw the banks retrench to mainly 5-year funding and the UK institutional market (in the shape of public bonds and private placements) dominating the market for long dated funding, almost entirely in secured, fixed rate format.

As sector business models and strategies continue to diversify, we are perhaps starting to see a break down of the old “one size fits all” funding mechanisms and the development of a much wider range of funding solutions and sources for HAs which are more bespoke to the needs of the business. Examples include;

  1. Increased use of unsecured bridging facilities from banks in order to secure liquidity and reduce timing/execution risk of capital markets issuance in potentially volatile markets
  2. Issuance of Floating Rate Notes rather than the usual fixed rate format as many borrowers have become over fixed in recent years
  3. Use of local authority lending for development, revolving and longer-term facilities
  4. Increased use of unsecured funding from both UK and non-UK investors in order to increase flexibility and as loan security becomes a constraint within certain organisations
  5. More direct funding into joint ventures and non-recourse commercial entities within groups in order to reduce reliance on on-lending or investment from the regulated entity
  6. Greater willingness to access non-UK investor markets in order to retain pricing leverage and arbitrage pricing basis between GBP and other funding markets (e.g. US, Euro, Korea)
  7. New group funding vehicles such as THFC’s bLEND and MORhomes

There has been a fairly consistent narrative in recent years that housing associations are getting a “raw deal” from sterling investors. When you look at pricing levels for sometimes weaker rated utility companies, for example, it is difficult to argue against this. Nonetheless, we would argue that the housing sector has perhaps played into the hands of UK investors by effectively signalling to them that they are the lender of first and last resort. This is in marked contrast to many issuers in the utilities sector, which play off sterling investors against the USPP and other non-GBP markets in order to tightly manage their funding costs.

This is borne out by some recent examples such as National Grid Electricity Transmission (A3/A-/A) which recently issued its first new sterling bond transaction since 2012 (excluding the liability management exercises undertaken as part of the Cadent de-merger in 2016) and only the second in the last 10yrs. The 16-year deal priced at G+120bps, significantly tighter than recent similarly rated housing deals. More recently, Bromford issued 20-year USPP the pricing of which we understand compared favorably both to its own secondary sterling bonds and recent issues by large HAs in the sterling market.

We see the challenge to established market orthodoxies as a healthy development for the social housing sector. As ever, changes to tried and tested funding mechanisms need to be fully understood from a risk management perspective and boards need to be comfortable with any associated treasury risks. For example, improving pricing dynamics by accessing a non-UK investor base may (where investors do not have natural sterling appetite) bring with it a degree of FX risk – whether contingent on pre-payment or outright, where the borrower swaps back into GBP. While these risks are manageable, they do need to be properly understood and capable of being monitored and managed from an operational perspective. This may preclude smaller organisations with less sophisticated and lower resourced treasuries which may opt for more vanilla funding structures.

MORhomes was of course predicated on its ability to address a number of sector challenges around pricing, ease of market access and structure. It is fair to say that we were always somewhat sceptical as to whether it could deliver on its stated objectives around pricing (other perhaps than for the very weakest credits) but had no evidential basis to support this. However, the spread on its debut issue of 190bps now provides a clear benchmark for HA borrowers weighing up their options, including own name approaches and the more competitively priced THFC aggregation vehicles. It is certainly clear given what we are seeing in the market that for larger and/or stronger credits, MORhomes (taking assumed additional enhancement/vehicle costs into account) is probably somewhere in the region of 40-60bps more expensive than what these borrowers might achieve in their own right. Even at the smaller/weaker end of the credit spectrum, it is likely that many borrowers would be able to achieve comparable or better pricing in their own name, although some may see non-pricing benefits in terms of structure and/or speed of execution (at least in respect of future transactions).

More generally, we fully expect this divergence trend to continue, bringing with it significant benefits for housing associations seeking both to minimise their cost of funding and to tailor debt structures to the specific needs of their businesses.

Originally published at the Social Housing Magazine on the 21st February 2019.

Other blogs:

Is now a great time for LSVTs to ditch legacy constraints?

What should HAs consider when looking to overseas investors?

New & Midlife Aircraft Market Dynamics at Growth Frontiers Dublin

Bill Cumberlidge, Managing Director of Centrus Aviation Capital was invited to take part in a panel debate during the Airline Economics Growth Frontiers Conference in Dublin this January.

The panel gathered over 1,800 people to discuss “New and Midlife Aircraft market dynamics”.

Some of the questions were:

  • With new aircraft production problems causing delays, what is the knock on effect on the midlife aircraft market (values and extensions)?
  • What do you think about the extension of leases during the latest industry events?
  • What is your view on airline bankruptcies and the effect it has on lessors?

If you are interested in investing in Aviation, please visit

The new finance: a Centrus report and route map


In the last five years, we have seen powerful new shifts in the way companies and other organisations obtain finance.

These changes place more real money from savers and investors into real economy borrowers, such as universities and infrastructure projects.

“We’ve returned to a simpler funding model, with a virtuous and mutually beneficial circle of capital.”

Phil Jenkins, Managing Director and Founding Partner, Centrus

Finance directors and corporate treasurers have never had so many funding options.

These changes follow a first phase of change when, after the financial crisis, banks retreated from lending to re-build their capital bases and work through problematic loan portfolios. Slowly but steadily, the management teams of mid-sized companies, utility firms, housing associations, universities and infrastructure projects identified a new group of finance providers.

But, from about 2013, markets started changing again, gravitating towards a simpler, lower risk and more transparent financing model where the users and providers of long-term capital interact more directly. This return to simplicity is creating a virtuous and mutually beneficial circle of capital. It is reminiscent of the nineteenth century building societies, mutuals and credit unions that provided so much of the finance required for housing and community infrastructure. Although today’s version includes sophisticated systems that manage data and reporting.

The modern funding model can also be characterised as finance with purpose. This is illustrated by UK pension funds and insurance companies generating stable and reliable returns by directly financing renewable energy, transport, power and water infrastructure or new affordable housing. In addition to direct, pension fund investment , the new finance features a rapidly growing direct lending market and new alternative income funds –  with issuers and borrowers often supported by the advice and technology of imaginative and independent corporate finance houses.

At the same time, and partly in response to these changes, banks have instituted fundamental changes to their lending focus, making fewer long-term loans and freeing up capital for short-term lending. They are also selling legacy long-term loan and swap exposures to those investors with a natural appetite for long-dated assets to match pension and insurance liabilities.

This report explains the main features of the new finance and maps them out graphically. We hope you and your colleagues find it helpful.

Download the full whitepaper below…

For more information, please contact Phil Jenkins, Managing Director – Centrus