Issue of £250m secured bonds Due 2038

Issue of £250m secured bonds due 2038

10 September 2008

Affinity Sutton has re-opened the bond market for individual housing associations with the launch and pricing of a £250m 30 year fixed rate secured bond issue through its capital markets issuance vehicle Affinity Sutton Capital Markets plc with a coupon of 5.981%.

The deal which is rated Aa2 by Moody’s Investor Service is the largest ever own-name bond issued by a Registered Social Landlord (“RSL”) and, as the first AA rated secured corporate deal to emerge from the sector, avoids the securitisation techniques used in earlier deals. The order book for the deal was over-subscribed and the bonds were placed with seventeen institutional investors.

The bonds are secured by assets and guarantees given by the three main RSLs in the Group, Broomleigh, Downland and William Sutton. The bond terms set a minimum level of asset cover of 105% on an Existing Use Value (EUV) basis or 125% on a Market Value Subject to Tenancies (MV-T) basis.

The degree of investor appetite for the transaction reflects the financial strength and high credit rating of Affinity Sutton Group as well as the strong credit fundamentals of a sector underpinned by effective regulation and enjoying significant capital and revenue support from the UK Government.

The deal is the first major new issue from the RSL sector since the credit crunch began over a year ago and suggests a key source of liquidity remains available to RSLs seeking finance to support the development of new affordable housing.

The deal was structured, underwritten and placed by RBC Capital Markets which is the leading arranger of bond transactions to the RSL sector.

Mark Washer, Group Finance Director at Affinity Sutton said “This is a fantastic result for The Affinity Sutton Group, and it is excellent news for the RSL sector which has been away from the capital markets for such a long time. On this evidence investors are really keen to see quality RSL paper coming back to the market. In the current climate, when increased funding diversification is critical to the sector, this can only be a good thing. There are lots of good and innovative things about this deal which make it flexible for us without reducing its attractiveness to investors, and I am particularly pleased that this deal attracted several new investors to the sector.”

Bob Vandersluis, Director of Treasury and Corporate Finance said “This transaction is the first of its type for the sector and paves the way for other financially strong RSLs to access the capital markets during a time when bank funding has become more constrained. While there is strong demand for RSL bonds, investors focused on Affinity Sutton’s robust interest cover performance and lack of reliance on asset sales which largely insulates the company from the weakness in the wider housing market. This deal complements our existing bilateral banking facilities and provides Affinity Sutton with significant unutilised liquidity increasing our capacity to meet our development goals and to consider opportunities as they present themselves.

Phil Jenkins, Director, Global Infrastructure, at RBC Capital Markets said “This benchmark deal demonstrates the credit fundamentals and maturity of the RSL sector and the financial strength of Affinity Sutton. The book for this deal is as strong as we have seen for some time in any sector, confirming that the sterling bond market is open to high quality RSL borrowers.”