Flagship’s debut Sustainability Bond to fund 4,000 new homes over next five years

We’re delighted to have supported Flagship Housing Group Limited (“Flagship”) with their debut Sustainability Bond, as they look to fund projects outlined in their Sustainable Finance Framework.

Flagship

Other case studies

View more case studies

Solving the housing crisis in the East of England

Flagship Housing Group Limited (“Flagship”), the largest affordable housing provider in the East of England, owns, manages and maintains over 31,800 homes.  Flagship’s vision is to solve the housing crisis in the East of England by delivering on its purpose to provide homes and create sustainable communities. Over the last three years, Flagship has developed 1,482 homes and has also invested in improvements to its existing homes. Over the next five years, a further 4,000 new affordable homes are planned.

At the same time, Flagship wants to reduce its impact on the environment, acknowledging that a large portion of its carbon emissions originate from its existing homes. Flagship aims for all of its existing homes to have an EPC rating of C or better by 2035 (and 2030 for fuel poor households), with the help of a significant retrofit programme. This includes improving the insulation of its homes and switching to renewable heating sources. In 2019/20 Flagship installed 300 air source heat pumps, and, in 2020/21, installed 400 low carbon heating systems. Over the next five years, the housing association plans to deliver circa 3,000 air source heat pumps and to roll out a £2million programme of smart thermostats, which will support tenants to reduce their heating bills through advanced smart technology.

Debut Sustainability Bond helps locking in historically low rate for the long term

From an ESG perspective, NatWest provided support to Flagship through:

  • Strategic ESG Structuring Advice
  • Refinement of the Sustainable Finance Framework to capture broader project categories
  • Supporting the engagement with the Second Party Opinion (“SPO”) provider

After establishing its Sustainable Finance Framework, which covers a wide range of possible debt instruments, NatWest were delighted to support its £250 million debut Sustainability Bond.

Given the inaugural nature of the transaction and Flagship’s desire to explore up to 40-year maturities, the NatWest team – in their role as Active Bookrunner, B&D, Investor Presentation and Roadshow Co-ordinator - recommended a three-day execution process, which included  a Global Investor Call (“GIC”) as well as selected 1-1 investor calls. This allowed the housing association to outline its credit story as well as showcase its sustainability credentials.

The positive investor feedback on the robustness of Flagship’s credit and ESG narrative translated into a strong order book, which enabled Flagship to price its 40-year £250 million sustainability bond with a coupon of 1.875%.

The proceeds of the bond will be used to build new affordable homes and fund energy efficiency projects as outlined in Flagship’s Sustainable Finance Framework, which contains a wide range of project categories reaching from schemes targeted at alleviating homelessness and digital training to projects that help tackle climate change. Sustainalytics were confirmed as the SPO provider to confirm that the framework is “credible and impactful and aligns with the Sustainability Bond Guidelines 2021, Green Bond Principles 2021, Social Bond Principles 2021, Green Loan Principles 2021 and Social Loan Principles 2021.” Sustainalytics also confirmed that the framework aligns to the UN Sustainable Development Goals (SDGs) #1’No Poverty’, #4 ‘Quality Education’, #7 ‘Affordable and Clean Energy’ and #11 ‘Sustainable Cities and Communities’.

Establishing Flagship in the Sterling bond market

Commenting on the transaction, George Flynn, Debt & Financing Solutions, NatWest, said: “We’re delighted to have supported our long-standing customer, Flagship Housing Group, with their debut Sustainability Bond. Overall, this was an extremely successful transaction, firmly establishing Flagship in the Sterling bond market after achieving the longest own named Sustainability Bond issued in the Social Housing sector to date.”

Dr Arthur Krebbers, Head of Sustainable Finance Corporates, NatWest, remarked: “This transaction serves to highlight the exceptionally fast growth in sustainability financing in the Social Housing sector with approximately 80% of Housing Association bonds issued YTD carrying an ESG label – a very encouraging sign that the sector recognises the critical role it plays in delivering the government’s ambition for net zero carbon emissions by 2050 while also achieving positive social impact.”

David Armstrong, Chief Financial Officer, Flagship Housing Group, said: “Many thanks to the NatWest team for a fantastic result and for all their support throughout our debut transaction. We’ve loved every minute of it (mostly!), but more importantly we are delighted the market recognises the credit strength of Flagship – a position we’ve worked hard on for many years and will continue to do so.”

Alex Fitzgerald, Head of Treasury and Regulation, Flagship Housing Group, added: “Thank you to the NatWest team to help us achieve our sustainable bond issuance. The support and knowledge from the team on the ESG reporting, Sustainable Finance Framework and market perceptions to the wider strategic and operational aspects of the Group was fantastic.”

The information provided in this article has been prepared by National Westminster Bank Plc (NatWest) for information purposes only and is subject to change from time to time. The information and views expressed should not be treated as advice or a recommendation of any kind. NatWest makes no representation, warranty, undertaking or assurance of any kind (express or implied) with respect to the adequacy, accuracy, completeness or reasonableness of the information provided and disclaims all liability for any use you, your affiliates, connected companies, employees, or your advisers make of it. NatWest accepts no liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this material or reliance on the information contained herein. However, this shall not restrict, exclude or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed. Copyright 2021 © NatWest Bank Plc. All rights reserved.

Case study