What are Retail Charity Bonds?
Retail charity bonds (RCBs/Bloomberg ticker: RCHBLN) enable charities and other ethical businesses to reach out to a wide range of retail and institutional investors when raising funds for capital investment. RCBs allows them to raise amounts suited to their needs through issuing bonds listed on the London Stock Exchange and traded on the order book for retail bonds.
Where can you buy retail charity bonds?
RCBs are available as new issues through a wide range of authorised distributors like AJ Bell, Hargreaves Lansdown, Primary Bid, Redmayne and Interactive Investor, and they can be bought or sold in the secondary market on all of these platforms
Why should Investors consider Retail Charity Bonds?
RCBs provide an opportunity for investors to purchase bonds delivering direct social and environmental impact by lending to charities focused on fulfilling their mission. RCB’s premise is a simple one; the investor’s funds are used by the charities to develop and expand their work.
As a result, RCBs provide investors with a unique opportunity to direct their money into areas that provide immediate social and environmental impact
And then follow the impact their funds have as they are applied to delivering this
Issuers include housing associations like Hightown HA building new homes, or care home operators like Belong constructing specialist facilities for residents with dementia
One example is the £11 million raised by Golden Lane Housing in 2013, used to buy 25 properties as homes for 99 people with learning disabilities
From an investment perspective, investors receive a fixed coupon payment (interest rate) for the life of the bond with return of capital at maturity. Coupons are set at launch and are in line with market rates, varying from 3.25% to 6.25% to date. RCBs offer a straightforward way for investors to lock in income whilst constructively directing their capital.
New issues now benefit from a S&P second party opinion on their alignment to internationally recognised ESG guidelines (ICMA).
What are the risks of buying Retail Charity Bonds?
Investors will be lending to the charities issuing the bonds, and should those charities be unable to meet their obligations, the investor’s capital will be at risk.
RCBs are not covered by the Financial Services Compensation Scheme.
RCBs trade on the London Stock Exchange and should investors wish to sell their bonds ahead of maturity, they may receive less than face value.
How do they work?
The bonds are issued through RCB Bonds plc a special purpose company which issues the bonds and lends them on directly to the charity on identical terms
Substantially reduces the costs of issuing a listed bond as it allows borrowers to use a standard template for the transaction
Provides investors with the comfort of a common legal structure and process for the bonds, and FCA approval of each prospectus.
Makes transactions for as little as £5.0m cost effective. Issue size on the program to date has varied between £10 and 50 million
The RCB Bonds plc has a board of senior non-executive directors chosen for their financial expertise and understanding of the Charity sector.
Requirement for detailed due diligence ahead of issue, based on historic performance and a forward looking business plan
Regular updates on the performance of the borrowers.
Regular investor updates from the borrowers and annual social impact report
Supported by an index of trading performance data (RCBi), available via Bloomberg
What Retail Charity Bonds can you invest in?
To date, RCB Bonds plc has issued £377m of bonds through 12 issues for 7 different charities:
- maturities of 7-10 years
- with a 1.3x unencumbered asset test
- where there is no cross-collateralisation between individual issuers
The bonds issued cover five sectors to date
- Social and supported housing
- Heritage and education
- Intermediate housing
- Charity Finance & philanthropy
Many of these charities have issued more than one bond
- Building a predictable and consistent supporter base amongst investors who can track the social impact their investment has delivered
- Allowing investors to build a long-term proactive relationship, with organisations delivering exceptional social benefit.
- Obtaining terms that become steadily more attractive as investors become acquainted with the credit