Business Clinic
Innovative funding for third sector care providers

Greensleeves Care has become the first care provider to raise funding for growth and development through a Retail Charity Bond. The Bond was so successful that it closed in under a week. Does it open the door for others to use similar approaches to raise funds?

Given the current financial climate and the specific requirements of lenders to the sector, routes to finance for those providers looking to develop, expand or upgrade their services can be difficult. However, Greensleeves Care has found an innovative way to raise funds for investment through a Retail Charity Bond.

Although Greensleeves Care does have access to the traditional financing routes, it selected this alternative approach to raise £33m for investment in the business, with a view to increase that to £50m as needed, and it only took a week to raise the funds.

Greensleeves Care

Greensleeves Care is a not-for-profit care provider that developed from the Women’s Royal Voluntary Service. It supports 789 residents in 20 homes across the Midlands, South and East of England. It offers both care homes and care homes with nursing.

The company is in a strong position with its quality of care, with nearly 85% of its rated homes having been awarded ‘Good’ or ‘Outstanding’ by the Care Quality Commission. Its five-year average occupancy sits at 93.9%, around 75% of its clients are privately funded and the remaining 25% are local authority or NHS funded.

Although the company is in a strong position in the market, it is not immune to the pressures facing the sector, including rising costs, the National Living Wage and reductions in local authority fees. In such an environment, it can make growth and business development difficult.

The company decided to use the Retail Charity Bond platform to raise funds for investment as this funding source best supported the ongoing development strategy of the charity. The Bond facility offered Greensleeves the security of a known long-term interest rate and repayment profile, supported by borrowing covenants that it says better matched the aims of the organisation.

Social Care Retail Charity Bond

The Retail Charity Bonds platform was created by Allia, a charity and specialist in social investment, to help charitable borrowers access finance that will enable them to grow and increase their social impact.

Phil Caroe, Director of Impact Finance at Allia explained more, ‘Bond finance is typically far lighter on covenants than bank debt and doesn’t need to be secured on the borrower’s assets. It offers borrowing at a fixed cost, usually for up to ten years, as well as the opportunity to raise profile and connect with new audiences.

‘The demand from investors for retail eligible bonds is very strong, particularly for ethical investment opportunities. However, the costs and compliance burden of issuing listed bonds tend to make it prohibitive for borrowers to issue their own bonds for much less than £50m.’

Allia, therefore, set up Retail Charity Bonds to make it simple and affordable for charitable borrowers to raise unsecured loan finance through bonds listed on London Stock Exchange.

The platform was launched in 2014 with the first Bond for Golden Lane Housing which raised £11m, closed early and was oversubscribed. The funds were used to buy and adapt around 30 properties, providing homes for over 100 people with a learning disability.

Two other Bonds have subsequently been issued, for Hightown Housing Association raising £27m, and Charities Aid Foundation raising £20m.

The Greensleeves Bond is the largest-to-date at £33m, with the lowest interest rate and brings the total raised by the platform to £91m.

Terms of the Bond

The Greensleeves Homes Trust Retail Charity Bond was launched on 7th March and closed a week later, on the 14th, after raising £33m from a wide range of individual, ethical and institutional investors.

The Bond will pay a fixed rate of interest at 4.25% per year, over nine years and is expected to mature on 30th March 2026, with a final legal maturity on 30th March 2028. The minimum initial subscription amount for investors was just £500.

The finance from the Bond will enable Greensleeves to increase the number of residents it supports through buying and developing new homes, as well as going to pay off all existing debt. With a total of £50m of Bonds created, there is also the option to raise up to a further £17m by selling more Bonds as needed in the future.

Paul Newman, Chief Executive of Greensleeves Care, said, ‘We are delighted that we have been part of the largest ever Retail Charity Bond issue. The money will be put to immediate use to buy and develop new homes and sites as we invest in our portfolio and our ability to increase the number of older people who benefit from our award-winning care.’

Success

Following the success of this Bond, Allia expects more care home providers to look at raising funds in this way. Phil Caroe continued, ‘Quality care for the elderly is an increasingly vital issue in the UK. Allia is very pleased to help Greensleeves Care increase the number of older people they are able to look after, and through this Bond to demonstrate the appetite from investors for supporting the care home sector.’

Over to the experts…

Are retail bonds an alternative route to funding for social care? Does the success of the Greensleeves Retail Charity Bond and the short timescales in which it raised its funding indicate a good appetite for investment in quality care? Will other not-for-profit care providers follow suit? What other routes to funding are there for providers at the moment? 

An exciting opportunity for quality care providers

Financial markets continue to innovate and develop in the UK. With the London Stock Exchange establishing the Order Book of Retail Bonds in 2010, this has opened an additional source of funding to UK businesses alongside bank debt.

With historically low interest rates, investors and savers are attracted to the relatively high rates of return achievable through retail bonds. This in turn has improved liquidity and demand, especially for good quality investments, which is evidenced by the oversubscribed nature of the Greensleeves Care Bond.

While retail bonds have been around for a number of years, they remain a niche funding platform alongside other corporate style investments such as private placements and corporate bonds. Debt securities, with increasing publicity and liquidity in the market, continue to grow in popularity, especially with the covenant light structure and longer term commitment offered when compared to bank debt funding.

We continue to see an increase in alternative funding methods within the care sector. These include the sale of ground rents, and property sale and leaseback to improve business liquidity, which continues to be supported by mainstream bank funding. Private equity involvement in the care sector also remains high.

With the Greensleeves Care Bond being the fourth Retail Charity Bond to be issued, we see this as an exciting opportunity for good quality care providers to consider alternative funding solutions to supplement or even replace existing bank debt, to balance ongoing funding requirements, between short and medium term, providing management with security of funding and freedom to continue to develop and enhance their care provision.

Owen Vizard Corporate Finance Manager, Hazlewoods LLP 

Some very valuable lessons to share

In a post-Brexit world, the notion of ‘taking back control’ has a mixed appeal. However, in the context of the Greensleeves’ charitable bond, taking back control seems very much the order of the day.

The financing of the organisation through the Bond creates opportunities for the organisation to adopt a more holistic approach, rather than managing a portfolio of debt linked to individual assets, with varying timescales, interest rates and covenants.

At a trustee level, I am certain that there are some very valuable lessons to share. It would be very interesting to understand their thought process as they took the bold step to engage in a financing model that sits outside the known parameters of what could be seen as a relatively traditional industry, with a reliance on tried and tested financing models.

I see this as a great example of innovation within the not-for profit-sector, showing how it can begin to expand the way in which it views its strengths and assets, and also a recognition by the wider investment world that the not-for-profit sector is made up of strong, business-savvy organisations, with a strong focus on quality, and a great potential for growth.

I recall the excitement in the housing sector when Golden Lane Housing launched its charitable bond in 2014, and the big news then was that the original bond closed two weeks early having raised £11m, after two and a half weeks of trading. The very fact that Greensleeves’ Bond sale closed after a week, raising three times as much, suggests to me that there is appetite in the market for more of the sector to explore this as a much-needed additional route into raising capital, and supporting the development of new homes, and the redesign of existing stock.

Vic Rayner Executive Director, National Care Forum 

Bank finance may prove more economic

Like many other proven operators with great pedigree, Greensleeves has admirable ambition to invest in its assets and strive to meet the growing demand for excellent quality care. There are increasingly more routes to access finance for investment, banks have capital to lend, although lending facilities come with varying sizes of hoops to be jumped through.

Similar operators are considering retail bonds for reasons such as: the reduced cost of debt servicing with no requirements for capital repayment until maturity; increased flexibility and control over use of funds, enabling a confident and decisive approach to opportunities often difficult to achieve with bank financing; relaxed covenants and perhaps the absence of a potentially distracting, sometimes intrusive, oversight of an anxious lender.

However, when evaluating the overall cost during the term, bank finance may prove itself significantly more economic. With record-beating low interest rates, capital can be borrowed for less. Operators with their sights set on multiple new-build schemes can access revolving facilities offering interest-only debt servicing, capital repayments can be profiled over 15-25 years. Furthermore, full repayment at maturity implies its own restraints and the pressure of needing a bulletproof business plan to ensure borrowings are not held as costly working capital for too long.

Supportive and experienced stakeholders offering investment funds for expensive infrastructure have been a feature in the market and will surely retain their place for due deliberation. Ideally, most advisers would usually recommend a carefully considered combination of a number of options, a bespoke fit for each individual organisation – as we know too well, the finance market is prone to change.

Liz Woollett Partner, Chandler & Co 

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