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2018 Annual Business Review

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2018 Annual Business Review Real Estate Private Equity Social Housing Project Finance Infrastructure Corporates jcragroup com

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Contents 06 Our year in numbers 08 CEO Introduction 10 Private Equity 18 Project Finance and Infrastructure 26 Real Estate 34 Social Housing 42 JCRA Global Reach Disclaimer J C Rathbone Associates Limited JCRA is authorised and regulated by the Financial Conduct Authority FCA in the United Kingdom under reference number 145229 This document is intended for persons who would come within the FCA s definition of professional clients and eligible counterparties and investment professionals as such term is defined in Article 19 of The Financial Services and Markets Act 2000 Financial Promotion Order 2005 only and should not be relied upon or distributed to persons who would come within the FCA s definition of retail clients No other person should rely upon the information contained within it This document has been issued by JCRA for information purposes only and does not constitute investment advice and is not to be construed as a solicitation or an offer to purchase or sell investments or related any financial instruments This document has no regard for the specific investment objectives financial situation or needs of any specific person or entity The information contained herein is based on materials and sources that we believe to be reliable however JCRA makes no representation or warranty either express or implied in relation to the accuracy completeness or reliability of the information contained herein The information in this document is not suitable for use in any jurisdiction where such activity or its distribution is prohibited Any persons resident outside the United Kingdom must satisfy themselves that they are not subject to any local requirements which prohibit or restrict them from doing so In particular the information herein does not constitute a solicitation in the United States of America to or for the benefit of any US Person as such term is defined under the United States Securities Act of 1933 as amended The above data and graphs are provided for illustrative purposes only and are not to be reproduced in any form without the express consent of JCRA Data has been smoothed in their preparation and have been based upon prevailing market rates as at the date given This paper is the product of a responsible source 04 05

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Contents 06 Our year in numbers 08 CEO Introduction 10 Private Equity 18 Project Finance and Infrastructure 26 Real Estate 34 Social Housing 42 JCRA Global Reach Disclaimer J C Rathbone Associates Limited JCRA is authorised and regulated by the Financial Conduct Authority FCA in the United Kingdom under reference number 145229 This document is intended for persons who would come within the FCA s definition of professional clients and eligible counterparties and investment professionals as such term is defined in Article 19 of The Financial Services and Markets Act 2000 Financial Promotion Order 2005 only and should not be relied upon or distributed to persons who would come within the FCA s definition of retail clients No other person should rely upon the information contained within it This document has been issued by JCRA for information purposes only and does not constitute investment advice and is not to be construed as a solicitation or an offer to purchase or sell investments or related any financial instruments This document has no regard for the specific investment objectives financial situation or needs of any specific person or entity The information contained herein is based on materials and sources that we believe to be reliable however JCRA makes no representation or warranty either express or implied in relation to the accuracy completeness or reliability of the information contained herein The information in this document is not suitable for use in any jurisdiction where such activity or its distribution is prohibited Any persons resident outside the United Kingdom must satisfy themselves that they are not subject to any local requirements which prohibit or restrict them from doing so In particular the information herein does not constitute a solicitation in the United States of America to or for the benefit of any US Person as such term is defined under the United States Securities Act of 1933 as amended The above data and graphs are provided for illustrative purposes only and are not to be reproduced in any form without the express consent of JCRA Data has been smoothed in their preparation and have been based upon prevailing market rates as at the date given This paper is the product of a responsible source 04 05

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Annual Business Review 2018 Annual Business Review 2018 2018 in numbers 30 We are celebrating 30 years in business 72 and grew our team to 72 11 who speak 11 different languages and advised across 35 different countries 476 170 34 647 We advised 476 clients of which 170 were new to our business 39bn 103 totalling 39bn in derivative value 06 And executed with 103 global hedging counterparties 35 and based in 34 different countries Our team advised on 647 transactions the value of total debt we advised on was 7bn and we raised 1 9bn of captial market debt 7bn 1 9bn 07

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2018 Annual Business Review Real Estate Private Equity Social Housing Project Finance Infrastructure Corporates jcragroup com

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2018 Annual Business Review Real Estate Private Equity Social Housing Project Finance Infrastructure Corporates jcragroup com

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CEO Introduction 2018 Our Review of 2018 The big topic in our markets for 2019 is the ongoing consultation for the replacement of LIBOR as the benchmark interest rate Welcome to our 2018 yearbook where we look back on the markets and our activity last year as well as look forward into 2019 and what it might bring in terms of debt market risk and hedging trends We advised on a total of 650 total transactions representing a quantum of EUR35bn in derivative value We raised or advised on a debt quantum of EUR6 2bn through private placements bank debt term and RCF institutional lenders and the retail bond market Pricing is still extremely attractive for those looking to refinance and many of our clients across took advantage of this in 2018 In the world of hedging we started 2018 with the expectation that we would see interest rate increases The US led the way and ended the year with four rate rises in total while the Bank of England also increased its rate to 0 75 EUR rates remained unchanged with EURIBOR still in negative territory and swap rates close to zero A higher than usual proportion of our risk management activity focused on FX in 2018 centring on USD strength in the main but also involving some challenging mandates in CNY1 and COP2 JCRA is well known within the PPP PFI sector and last year we were very proud to work on the 6bn Gordie Howe transaction In the Netherlands we completed the Blankenburg Tunnel PPP and are the chosen partner for Ofgem and Transport for London 1 Chinese Yuan 08 2 Renewable energy has been the area of most activity for our project finance and infrastructure team We hedged market risk in transactions across many different types of renewable sources in a variety of geographies including Australia South Africa and Scotland We are now involved in a ground breaking transaction structure in the Taiwanese market The management of the market risk aspects of these transactions are critical to their viability and long term success You will read in the following pages about the scale of refinancing activity which has led us into advisory engagements focused on optimising legacy hedging as well as recouponing of derivatives to improve the cost of debt service A higher than usual proportion of our risk management activity focused on FX in 2018 In real estate we focused on the diversification of our client base both geographically into Europe and also by underlying asset type The aptly named bed sector still offers significant opportunities residential student accommodation hotels healthcare senior living and co living are particularly attractive given their non cyclical characteristics In this review we showcase our mandate with Audley Villages and an innovative debt structure to support its growth ambitions Jackie Bowie Group CEO Private equity mandates have been much more driven by FX risk management than in previous years As noted the impact on returns from FX exposure has been an important theme for many of our clients We talk extensively about deal contingent FX hedging the pricing parameters for those using this solution have materially improved However we still see value not being fully optimised and this is a key focus for 2019 and an area where we believe we are adding most value to client outcomes As the numbers above demonstrate JCRA s activity in the debt markets was very high in 2018 Much of this was driven by our social housing borrowers who have a very broad range of funding sources from bank debt to PPs to the retail bond market and the larger public bond market IFRS9 came into mandatory effect at the beginning of 2018 We are still working with many of our clients as they adopt the new standard and build their understanding of its implications for their hedging decisions along with the impact of derivatives on their financial statements We will officially launch Ada our new technology platform that will further support clients requirements in valuation and hedge accounting in 2019 Ada has taken over 18 months to develop and is a market leading offering with capabilities to streamline processes and provide better information to our clients on their derivative positions The big topic in our markets for 2019 is the ongoing consultation for the replacement of LIBOR as the benchmark interest rate The banks have been closely engaged in this evolving replacement and we aim to keep our clients regularly up to date as the alternative is defined 2019 will mark a major milestone 30 years in business for JCRA It is with great thanks to you that this success has been made possible Thank you for affording us the opportunity to work alongside you and assist in your transactions Columbian Peso 09

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Private Equity 2018 Private Equity 2018 Private Equity The JCRA private equity team saw a large increase in FX risk engagements during 2018 with our clients dedicating more attention to evaluating their exposure and its impact on returns growth aspirations Unsurprisingly this has applied particularly to UK and European firms expanding into the US due to the uncertainty caused by both Brexit and the general economic outlook for the Eurozone Overseas markets represent significant opportunities to hedge these political uncertainties but also give rise to new risks associated with growing foreign currency revenues Enterprise values based on foreign currency EBITDA can vary considerably in the face of exchange rate fluctuations feeding through to a major impact on returns Benoit de Benaze Head of Private Equity International expansion also moved up the private equity sector s agenda in 2018 with more firms strengthening their overseas operations As a result the question of how to fund cross border growth and acquisitions has naturally come into sharper focus Should a company fund transactions in its reporting currency and accept an immediate foreign exchange risk Or should it do so in the local currency and take the same exposure onto its balance sheet Closely related to this question on FX risk was another key theme for the year the divergence of the major interest rate regimes Opportunities overseas After another bumper year for fundraising in private equity the upward pressure on valuation multiples is increasingly pushing companies to look abroad in order to meet their 10 Future proofing of financing costs was a hot topic in the second half of last year and this will continue into 2019 While the traditional way to address this has been to draw foreign currency debt in proportion to the EBITDA split of the business the wide variation in funding costs across the major debt markets now makes this decision less straightforward Stabilising equity value through foreign currency debt is all very well but in many cases this must be weighed against the certain cost of a significantly higher interest rate There is no single right answer and the optimal solution is strongly dependent on the company s preferred risk profile Indeed as detailed in one of the case studies in this review many firms would much rather bear a higher interest cost burden than face the potentially more damaging risk of seeing their overseas revenues eroded by FX fluctuations Market volatility and geopolitical risk are likely to remain firmly on the radar in the coming year Planning ahead Future proofing of financing costs was a hot topic in the second half of last year and this will continue into 2019 Unitranche lenders have been increasingly active in PE backed transactions and partly due to their appetite 2018 saw the volume of covenant light debt soar to 80 of all leveraged lending in Europe This relaxing of covenants has extended to mandatory hedging conditions relatively uncommon in the US although very much still in place in the UK and Europe We are encouraged by the number of our clients who are taking the opportunity to improve covenants extend debt terms and reduce margins while economic conditions remain benign It s a gloomy thought but the fact remains that when the business cycle does finally turn those who have ensured they have appropriate and appropriately hedged debt funding in place will be much better positioned to face any downturn Market volatility and geopolitical risk are likely to remain firmly on the radar in the coming year Given the high level of uncertainty in the economic outlook we expect the current preference for hedging strategies that provide a significant degree of flexibility to persist for the foreseeable future We look forward to helping our clients navigate these uncertain market conditions in 2019 11

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Private Equity 2018 Private Equity 2018 Private Equity The JCRA private equity team saw a large increase in FX risk engagements during 2018 with our clients dedicating more attention to evaluating their exposure and its impact on returns growth aspirations Unsurprisingly this has applied particularly to UK and European firms expanding into the US due to the uncertainty caused by both Brexit and the general economic outlook for the Eurozone Overseas markets represent significant opportunities to hedge these political uncertainties but also give rise to new risks associated with growing foreign currency revenues Enterprise values based on foreign currency EBITDA can vary considerably in the face of exchange rate fluctuations feeding through to a major impact on returns Benoit de Benaze Head of Private Equity International expansion also moved up the private equity sector s agenda in 2018 with more firms strengthening their overseas operations As a result the question of how to fund cross border growth and acquisitions has naturally come into sharper focus Should a company fund transactions in its reporting currency and accept an immediate foreign exchange risk Or should it do so in the local currency and take the same exposure onto its balance sheet Closely related to this question on FX risk was another key theme for the year the divergence of the major interest rate regimes Opportunities overseas After another bumper year for fundraising in private equity the upward pressure on valuation multiples is increasingly pushing companies to look abroad in order to meet their 10 Future proofing of financing costs was a hot topic in the second half of last year and this will continue into 2019 While the traditional way to address this has been to draw foreign currency debt in proportion to the EBITDA split of the business the wide variation in funding costs across the major debt markets now makes this decision less straightforward Stabilising equity value through foreign currency debt is all very well but in many cases this must be weighed against the certain cost of a significantly higher interest rate There is no single right answer and the optimal solution is strongly dependent on the company s preferred risk profile Indeed as detailed in one of the case studies in this review many firms would much rather bear a higher interest cost burden than face the potentially more damaging risk of seeing their overseas revenues eroded by FX fluctuations Market volatility and geopolitical risk are likely to remain firmly on the radar in the coming year Planning ahead Future proofing of financing costs was a hot topic in the second half of last year and this will continue into 2019 Unitranche lenders have been increasingly active in PE backed transactions and partly due to their appetite 2018 saw the volume of covenant light debt soar to 80 of all leveraged lending in Europe This relaxing of covenants has extended to mandatory hedging conditions relatively uncommon in the US although very much still in place in the UK and Europe We are encouraged by the number of our clients who are taking the opportunity to improve covenants extend debt terms and reduce margins while economic conditions remain benign It s a gloomy thought but the fact remains that when the business cycle does finally turn those who have ensured they have appropriate and appropriately hedged debt funding in place will be much better positioned to face any downturn Market volatility and geopolitical risk are likely to remain firmly on the radar in the coming year Given the high level of uncertainty in the economic outlook we expect the current preference for hedging strategies that provide a significant degree of flexibility to persist for the foreseeable future We look forward to helping our clients navigate these uncertain market conditions in 2019 11

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Private Equity 2018 Case study Large PE Fund FX Deal Contingent Hedging Background Large EUR PE fund acquiring a UK business for a consideration payable in GBP Equity for the transaction was denominated in EUR giving rise to FX risk between signing and closing of the acquisition Deal was subject to regulatory approval which implied a low risk of the acquisition failing to complete Client had the choice between eight Deal Contingent providers banks involved in the deal third parties 12 Our approach Independent review of the SPA to offer two alternatives for implementation achieving different objectives and timelines Management coordination of an efficient process with a tight schedule three days to trade with the client the selected banks and all the other parties involved M A Antitrust lawyers for due diligence derivatives lawyers to review the deal confirmation Provision of additional input during the process Deal Contingent Option discussion flexibility to settle before closing and other commercial points Live benchmarking during implementation of trade ensuring efficient and transparent pricing 5 banks process 3 days implementation Sub 20 pricing Benefits Process that was tailored to the underlying M A situation the banks involved and the size of market risk in order to create the best pricing environment while limiting the amount of work resource consumption on the client side Very tight implementation timeline Highly attractive pricing with a deal contingent premium of less than 20 of the at the money option Flexible settlement mechanism permitting the delivery of the contract at any date between the first and the long stop date 13

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Private Equity 2018 Case study Large PE Fund FX Deal Contingent Hedging Background Large EUR PE fund acquiring a UK business for a consideration payable in GBP Equity for the transaction was denominated in EUR giving rise to FX risk between signing and closing of the acquisition Deal was subject to regulatory approval which implied a low risk of the acquisition failing to complete Client had the choice between eight Deal Contingent providers banks involved in the deal third parties 12 Our approach Independent review of the SPA to offer two alternatives for implementation achieving different objectives and timelines Management coordination of an efficient process with a tight schedule three days to trade with the client the selected banks and all the other parties involved M A Antitrust lawyers for due diligence derivatives lawyers to review the deal confirmation Provision of additional input during the process Deal Contingent Option discussion flexibility to settle before closing and other commercial points Live benchmarking during implementation of trade ensuring efficient and transparent pricing 5 banks process 3 days implementation Sub 20 pricing Benefits Process that was tailored to the underlying M A situation the banks involved and the size of market risk in order to create the best pricing environment while limiting the amount of work resource consumption on the client side Very tight implementation timeline Highly attractive pricing with a deal contingent premium of less than 20 of the at the money option Flexible settlement mechanism permitting the delivery of the contract at any date between the first and the long stop date 13

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Private Equity 2018 Case study Up to Debt redenomination and interest rate hedging for a UK based company Background Debt financed acquisition of UK based company with significant GBPUSD exposure GBP consideration was to be paid to vendor financing was provided by both a bank and a debt fund Possibility of redenomination from GBP into USD provided a way of addressing currency risk but the higher interest cost in USD had to be taken into account 14 Our approach JCRA produced analysis clearly highlighting the implications for funding cost if the debt was redenominated and presented derivative based approaches as alternatives 30m potential stabilisation of equity value 2x reduction of leverage ratio volatility Permanent natural FX hedge for USD income Benefits Pre closing Informed decision on whether to redenominate GBP debt into USD For additional context the effects on leverage ratio and equity value were illustrated demonstrating benefits of sourcing debt in USD Establishment and benchmarking of redenomination rates offered by the debt fund and bank made sure that the borrower didn t overpay for sourcing non GBP debt Following the decision to redenominate into USD JCRA assisted with the procedure which differed between the lenders due to funding timelines Post closing Suitable interest rate hedging strategy to support the business case Post completion JCRA arranged the USD interest rate hedging for the company Introduction of external hedge counterparties resulted in notable pricing improvements 15

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Private Equity 2018 Case study Up to Debt redenomination and interest rate hedging for a UK based company Background Debt financed acquisition of UK based company with significant GBPUSD exposure GBP consideration was to be paid to vendor financing was provided by both a bank and a debt fund Possibility of redenomination from GBP into USD provided a way of addressing currency risk but the higher interest cost in USD had to be taken into account 14 Our approach JCRA produced analysis clearly highlighting the implications for funding cost if the debt was redenominated and presented derivative based approaches as alternatives 30m potential stabilisation of equity value 2x reduction of leverage ratio volatility Permanent natural FX hedge for USD income Benefits Pre closing Informed decision on whether to redenominate GBP debt into USD For additional context the effects on leverage ratio and equity value were illustrated demonstrating benefits of sourcing debt in USD Establishment and benchmarking of redenomination rates offered by the debt fund and bank made sure that the borrower didn t overpay for sourcing non GBP debt Following the decision to redenominate into USD JCRA assisted with the procedure which differed between the lenders due to funding timelines Post closing Suitable interest rate hedging strategy to support the business case Post completion JCRA arranged the USD interest rate hedging for the company Introduction of external hedge counterparties resulted in notable pricing improvements 15

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Private Equity 2018 Private Equity 2018 A selection of recent transaction highlights 16 Stirling Square Bridge Ventures Five Guys Duke Street Corsair Capital Castik Capital EQT Vitruvian Partners TDR Capital IK Investment Partners 17

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Private Equity 2018 Private Equity 2018 A selection of recent transaction highlights 16 Stirling Square Bridge Ventures Five Guys Duke Street Corsair Capital Castik Capital EQT Vitruvian Partners TDR Capital IK Investment Partners 17

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Project Finance and Infrastructure 2018 Project Finance and Infrastructure 2018 Project Finance and Infrastructure With significant fundraising by both listed and private funds the infrastructure sector positions itself as investors preferred investment within the real asset class Geographical growth In 2018 we continued to expand our geographical footprint advising clients in new territories across Asia Australasia Latin America and the African continent We expect this expansion to continue next year to encompass business in India the Middle East and Eastern Europe Rishin Patel Head of Project Finance and Infrastructure Much of our activity in the infrastructure sector supports the trading of existing assets and refinancing but we are also seeing an increasing number of greenfield projects reaching financial close FC The mix of energy generation projects was strongly skewed towards renewables last year with more than half of our transactions in project finance in renewable energy We have continued to serve the public sector in PPP PFI transactions and are particularly proud to have advised on the Gordie Howe International Bridge P3 in USA Canada as well as the highly coveted Blankenburg Tunnel PPP in the Netherlands We remain the go to advisor for UK PFI and we are currently engaged on mandates for Ofgem Department for Transport and Transport for London 18 Infrastructure investors are acutely aware of being on risk until projects reach FC As a result in the current interest rate environment pre hedging financial risks has been dominant in our client discussions Deal contingent hedging and the different alternatives in the way this pre hedge can be structured features in more transactions than ever before Suppressed debt margins as a result of the significant interest to lend to the credit worthy infrastructure sector has brought about a flurry of refinancing activity in the last year A wider selection of funding alternatives have been available including an increase in institutional lending inflation linked debt and commercial bank debt In 2019 we expect the sizeable wall of money representing substantial dry powder that is still looking for a home to seek out assets The transparency that followed the regulatory implementation of MiFIDII along with negotiations in xVA pricing are market step changes that can materially affect a transaction We have successfully negotiated xVA rebates for clients where project bids are driven by large derivative liabilities and indeed where they have enhanced a refinancing situation Demand for hedge accounting and effectiveness testing JCRA has also seen a significant increase in demand for hedge accounting and effectiveness testing In particular the transition and implementation of IFRS9 has been a key focus area for clients who have a buy and hold strategy where mark to market fluctuations on long dated derivative contracts can be sizeable In 2019 we expect the sizeable wall of money representing substantial dry powder that is still looking for a home to seek out assets where there is a prospect of enhanced yields particularly in emerging markets We expect a continuation of refinancing activity as well as a significant pick up in greenfield projects The demand for clean energy coupled with ambitious targets set globally will continue to drive the green energy trend As some of the case studies and tombstones in this yearbook show JCRA operates at the heart of many of these transactions managing all aspects of clients market risk 19

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Project Finance and Infrastructure 2018 Project Finance and Infrastructure 2018 Project Finance and Infrastructure With significant fundraising by both listed and private funds the infrastructure sector positions itself as investors preferred investment within the real asset class Geographical growth In 2018 we continued to expand our geographical footprint advising clients in new territories across Asia Australasia Latin America and the African continent We expect this expansion to continue next year to encompass business in India the Middle East and Eastern Europe Rishin Patel Head of Project Finance and Infrastructure Much of our activity in the infrastructure sector supports the trading of existing assets and refinancing but we are also seeing an increasing number of greenfield projects reaching financial close FC The mix of energy generation projects was strongly skewed towards renewables last year with more than half of our transactions in project finance in renewable energy We have continued to serve the public sector in PPP PFI transactions and are particularly proud to have advised on the Gordie Howe International Bridge P3 in USA Canada as well as the highly coveted Blankenburg Tunnel PPP in the Netherlands We remain the go to advisor for UK PFI and we are currently engaged on mandates for Ofgem Department for Transport and Transport for London 18 Infrastructure investors are acutely aware of being on risk until projects reach FC As a result in the current interest rate environment pre hedging financial risks has been dominant in our client discussions Deal contingent hedging and the different alternatives in the way this pre hedge can be structured features in more transactions than ever before Suppressed debt margins as a result of the significant interest to lend to the credit worthy infrastructure sector has brought about a flurry of refinancing activity in the last year A wider selection of funding alternatives have been available including an increase in institutional lending inflation linked debt and commercial bank debt In 2019 we expect the sizeable wall of money representing substantial dry powder that is still looking for a home to seek out assets The transparency that followed the regulatory implementation of MiFIDII along with negotiations in xVA pricing are market step changes that can materially affect a transaction We have successfully negotiated xVA rebates for clients where project bids are driven by large derivative liabilities and indeed where they have enhanced a refinancing situation Demand for hedge accounting and effectiveness testing JCRA has also seen a significant increase in demand for hedge accounting and effectiveness testing In particular the transition and implementation of IFRS9 has been a key focus area for clients who have a buy and hold strategy where mark to market fluctuations on long dated derivative contracts can be sizeable In 2019 we expect the sizeable wall of money representing substantial dry powder that is still looking for a home to seek out assets where there is a prospect of enhanced yields particularly in emerging markets We expect a continuation of refinancing activity as well as a significant pick up in greenfield projects The demand for clean energy coupled with ambitious targets set globally will continue to drive the green energy trend As some of the case studies and tombstones in this yearbook show JCRA operates at the heart of many of these transactions managing all aspects of clients market risk 19

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Project Finance and Infrastructure 2018 Case study Rijkswaterstaat Blankenburg Tunnel PPP Background A EUR 1bn project to construct a new 4 2km tunnel under the Nieuwe Maas River linking the A15 and A20 roads west of Rotterdam The project had two bidding consortia submitting Best and Final Offer BAFO funding solutions The lending group was made up of 10 lenders comprised of both banks and institutional lenders JCRA s role at the pre preferred bidder stage was to ensure each bidder priced their inputs and hedge structure correctly whilst also accessing other aspects of the proposed funding solution At post preferred bidder stage our objective was to benchmark and refine the price of their structure 20 Our approach Once receiving the debt profile JCRA worked with the RWS to ensure the pricing was transparent and at market based on a pre defined static interest rate curve therefore enabling each submission to be compared on a like for like basis JCRA also established market pricing execution and credit spreads Undisclosed margins were also ascertained and negotiated where necessary At Financial Close JCRA ensured a competitive execution procedure was adhered to and that pricing reflected fair market rates and was in line with the agreed benchmarking protocol 1bn project 10 lender syndicate Benefits JCRA ensured accuracy in all of the bid submissions hedge pricing By benchmarking each of the bidder s risk solutions at the pre preferred bidder stage JCRA was able to negotiate competitive pricing for the execution and credit spreads applicable to the swap s well in advance of FC This was done whilst there was still competition to be mandated for the concession JCRA coordinated the execution process at FC Prior to FC JCRA along with the RWS and winning consortia banks conducted a series of dry run exercises to provide transparency to the parties involved and ensure pre agreed pricing was maintained 21

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Project Finance and Infrastructure 2018 Case study Rijkswaterstaat Blankenburg Tunnel PPP Background A EUR 1bn project to construct a new 4 2km tunnel under the Nieuwe Maas River linking the A15 and A20 roads west of Rotterdam The project had two bidding consortia submitting Best and Final Offer BAFO funding solutions The lending group was made up of 10 lenders comprised of both banks and institutional lenders JCRA s role at the pre preferred bidder stage was to ensure each bidder priced their inputs and hedge structure correctly whilst also accessing other aspects of the proposed funding solution At post preferred bidder stage our objective was to benchmark and refine the price of their structure 20 Our approach Once receiving the debt profile JCRA worked with the RWS to ensure the pricing was transparent and at market based on a pre defined static interest rate curve therefore enabling each submission to be compared on a like for like basis JCRA also established market pricing execution and credit spreads Undisclosed margins were also ascertained and negotiated where necessary At Financial Close JCRA ensured a competitive execution procedure was adhered to and that pricing reflected fair market rates and was in line with the agreed benchmarking protocol 1bn project 10 lender syndicate Benefits JCRA ensured accuracy in all of the bid submissions hedge pricing By benchmarking each of the bidder s risk solutions at the pre preferred bidder stage JCRA was able to negotiate competitive pricing for the execution and credit spreads applicable to the swap s well in advance of FC This was done whilst there was still competition to be mandated for the concession JCRA coordinated the execution process at FC Prior to FC JCRA along with the RWS and winning consortia banks conducted a series of dry run exercises to provide transparency to the parties involved and ensure pre agreed pricing was maintained 21

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Project Finance and Infrastructure 2018 Case study Wren House Infrastructure Hedging Natural Gas Assets Background JCRA advised Wren House Infrastructure WHI on its acquisition of North Sea Midstream Partners NSMP from ArcLight Capital Partners NSMP operates four large scale natural gas transportation and processing assets in and around the North Sea processing approximately 25 of the UK s natural gas Our approach JCRA performed a comprehensive risk analysis to understand WHI s risk tolerance to interest rate and deal contingent hedging identified net interest rate risk exposures and assisted the deal team with the integration of scenario analysis and dynamic hedging into their financial model The total debt requirement to fund the acquisition was c USD1bn with a 7 year tenor This was used to refinance the existing debt and was provided by a syndicate of commercial banks In total 15 banks were involved in the transaction JCRA presented a clear hedging strategy with transparent pricing drove the timely execution of the hedge and liaised with banks Wren House were looking to manage its interest rate risk exposure for the full 7 year term as well as considering a deal contingent hedge prior to the deal reaching close 22 Our team assisted the legal counsel with transaction documentation ensured EMIR and regulatory compliance throughout the process as well as negotiating hedging documentation such as commercial ISDA representations 1bn debt requirement 7 year tenor Benefits JCRA completed the execution pricing allowing WHI to appoint a market hedge coordinator Our deal team then worked with the hedge coordinating bank to minimise WHI work and resources given the large number of banks involved JCRA successfully managed a large scale hedge restructure with multiple stakeholders WHI obtained a highly competitive price for its desired hedging strategy reaching financial close in September 2018 23

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Project Finance and Infrastructure 2018 Case study Wren House Infrastructure Hedging Natural Gas Assets Background JCRA advised Wren House Infrastructure WHI on its acquisition of North Sea Midstream Partners NSMP from ArcLight Capital Partners NSMP operates four large scale natural gas transportation and processing assets in and around the North Sea processing approximately 25 of the UK s natural gas Our approach JCRA performed a comprehensive risk analysis to understand WHI s risk tolerance to interest rate and deal contingent hedging identified net interest rate risk exposures and assisted the deal team with the integration of scenario analysis and dynamic hedging into their financial model The total debt requirement to fund the acquisition was c USD1bn with a 7 year tenor This was used to refinance the existing debt and was provided by a syndicate of commercial banks In total 15 banks were involved in the transaction JCRA presented a clear hedging strategy with transparent pricing drove the timely execution of the hedge and liaised with banks Wren House were looking to manage its interest rate risk exposure for the full 7 year term as well as considering a deal contingent hedge prior to the deal reaching close 22 Our team assisted the legal counsel with transaction documentation ensured EMIR and regulatory compliance throughout the process as well as negotiating hedging documentation such as commercial ISDA representations 1bn debt requirement 7 year tenor Benefits JCRA completed the execution pricing allowing WHI to appoint a market hedge coordinator Our deal team then worked with the hedge coordinating bank to minimise WHI work and resources given the large number of banks involved JCRA successfully managed a large scale hedge restructure with multiple stakeholders WHI obtained a highly competitive price for its desired hedging strategy reaching financial close in September 2018 23

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Project Finance and Infrastructure 2018 Project Finance and Infrastructure 2018 A selection of recent transaction highlights 24 South West Trains Numurkah Wind Farm Veja Mate Refinance A16 Rotterdam Highway Burbo Bank OFTO 6 Solar Projects Italian Solar Refinance Borssele III IV verturingen Onshore Wind Farm Group Lacroix Acquisition 25

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Project Finance and Infrastructure 2018 Project Finance and Infrastructure 2018 A selection of recent transaction highlights 24 South West Trains Numurkah Wind Farm Veja Mate Refinance A16 Rotterdam Highway Burbo Bank OFTO 6 Solar Projects Italian Solar Refinance Borssele III IV verturingen Onshore Wind Farm Group Lacroix Acquisition 25

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Real Estate 2018 Real Estate 2018 Real Estate The key trends in European real estate during 2018 were low real estate yields high expectations of interest rate rises good liquidity in debt markets and foreign exchange volatility driven by geopolitical risk Shripal Shah Head of Real Estate Higher yielding alternatives such as care homes retirement living and student accommodation have continued to see good volumes of investment These trends have been reflected in our debt advisory deals this year We raised bank debt for Impact Healthcare REIT care homes and Audley Villages retirement living as well as a retail bond issue for Regional REIT After many false starts there is more expectation this year that interest rates will actually increase Since so many real estate asset classes are at historically low yields other clients have focused on lower risk strategies such as share buy backs and investment in debt instruments and platforms 26 After many false starts there is more expectation this year that interest rates will actually increase This is most evident in the Eurozone where the forward curve is relatively steep and Mario Draghi has remained on course with his intention to shut down the QE programme The same would be the case in the UK were it not for the uncertainty of Brexit flattening the yield curve although this has proved very beneficial for those seeking longerterm financing As investors have become somewhat concerned about future refinancing risk they have addressed it by using derivatives This usually means buying swaptions options to enter a fixed rate out two to three years which means the refinancing exposure is limited only to the margin component of the cost of debt Hedging FX risk We have also seen a material increase in the number of enquiries from real estate clients who are evaluating and looking to hedge their FX risk Currency volatility has impacted returns Asset managers face increased scrutiny from their own investors to focus their efforts on the asset class risk only and mitigate all other aspects of market risk The reluctance to hedge can arise from a fear of getting it wrong and the hedge ending up having an opportunity cost Our advice has focused on helping our clients understand that a perfect hedge is impossible due to the uncertainty of cashflows and timings of the hold period of the asset Optimal hedging can however still be achieved if a clear objective is defined and careful analysis is carried out Brexit uncertainty dominates but seems to be worrying European investors more than those in Asia and the US who still see European markets offering attractive investment opportunities There is a consensus that the European real estate sector is definitely in late cycle valuations are high and there is a scarcity of attractive new opportunities The continued trend towards alternatives including residential hotels flexible offices and student housing will be a clear theme for 2019 While the outlook is less rosy than it was a year ago there is general optimism that the end of the cycle is not of the 2008 ilk but more that valuations simply plateau and remain there for 12 18 months Brexit uncertainty dominates but seems to be worrying European investors more than those in Asia and the US who still see European markets offering attractive investment opportunities There was a large flow of new equity in 2018 and 2019 will be the same Investors from Korea Singapore and Japan are allocating capital to European real estate and this will definitely contribute to greater liquidity in the sector 27

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Real Estate 2018 Real Estate 2018 Real Estate The key trends in European real estate during 2018 were low real estate yields high expectations of interest rate rises good liquidity in debt markets and foreign exchange volatility driven by geopolitical risk Shripal Shah Head of Real Estate Higher yielding alternatives such as care homes retirement living and student accommodation have continued to see good volumes of investment These trends have been reflected in our debt advisory deals this year We raised bank debt for Impact Healthcare REIT care homes and Audley Villages retirement living as well as a retail bond issue for Regional REIT After many false starts there is more expectation this year that interest rates will actually increase Since so many real estate asset classes are at historically low yields other clients have focused on lower risk strategies such as share buy backs and investment in debt instruments and platforms 26 After many false starts there is more expectation this year that interest rates will actually increase This is most evident in the Eurozone where the forward curve is relatively steep and Mario Draghi has remained on course with his intention to shut down the QE programme The same would be the case in the UK were it not for the uncertainty of Brexit flattening the yield curve although this has proved very beneficial for those seeking longerterm financing As investors have become somewhat concerned about future refinancing risk they have addressed it by using derivatives This usually means buying swaptions options to enter a fixed rate out two to three years which means the refinancing exposure is limited only to the margin component of the cost of debt Hedging FX risk We have also seen a material increase in the number of enquiries from real estate clients who are evaluating and looking to hedge their FX risk Currency volatility has impacted returns Asset managers face increased scrutiny from their own investors to focus their efforts on the asset class risk only and mitigate all other aspects of market risk The reluctance to hedge can arise from a fear of getting it wrong and the hedge ending up having an opportunity cost Our advice has focused on helping our clients understand that a perfect hedge is impossible due to the uncertainty of cashflows and timings of the hold period of the asset Optimal hedging can however still be achieved if a clear objective is defined and careful analysis is carried out Brexit uncertainty dominates but seems to be worrying European investors more than those in Asia and the US who still see European markets offering attractive investment opportunities There is a consensus that the European real estate sector is definitely in late cycle valuations are high and there is a scarcity of attractive new opportunities The continued trend towards alternatives including residential hotels flexible offices and student housing will be a clear theme for 2019 While the outlook is less rosy than it was a year ago there is general optimism that the end of the cycle is not of the 2008 ilk but more that valuations simply plateau and remain there for 12 18 months Brexit uncertainty dominates but seems to be worrying European investors more than those in Asia and the US who still see European markets offering attractive investment opportunities There was a large flow of new equity in 2018 and 2019 will be the same Investors from Korea Singapore and Japan are allocating capital to European real estate and this will definitely contribute to greater liquidity in the sector 27

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Real Estate 2018 Case study Audley Retirement Syndicated Revolving Credit Facility Background Audley Retirement Audley is a luxury retirement village owner operator and developer with 19 village locations around the UK Audley have an ongoing development programme which will see the company greatly expand the number of sites in its portfolio over the coming 5 years Flexible debt financing was essential to allow the company to complete its pipeline and provide ongoing capital JCRA along with Audley identified a 125 million requirement for funding in the form of a revolving credit facility which would allow the debt balance to fluctuate in step with sales income and also development costs JCRA was mandated to obtain debt funding in a sector that is relatively unknown to lenders particularly when considering the scale of the request and the type of funding required 28 Our approach JCRA and Audley built a cashflow model and worked closely together to identify the key features required for this financing in order to allow Audley to follow through on its business plan We prepared all the necessary documentation and analysis to present our request for finance to prospective lenders and then worked alongside them to explain some of the more complicated features of the request JCRA worked with multiple lending partners to bring together various offers of lending and formulate a syndicate of lenders able to commit to a common funding structure We advised Audley on the most suitable combination of lenders to achieve the best funding structure for Audley and then negotiated with those lenders to agree a common set of terms JCRA then worked with the lenders to achieve full credit approval and assist through the documentation and DD process 125m requirement for funding identified First 100m RCF provided to this sector Benefits Achieved a well rounded ongoing funding package for Audley Bespoke covenant suite that JCRA refined ticking the boxes both for our client in terms of functionality and practical use and the lenders in terms of managing their risk exposure Competitive pricing including an improved margin on refinance of existing lending A first for the sector on such a scale first 100m RCF provided to the luxury retirement village sector An effective hedging strategy drastically reducing the interest rate exposure Audley will encounter throughout the term of the loan A highly satisfied client I was impressed with JCRA s knowledge of the prospective lenders and their tenacious approach to getting this unique facility for the sector across the line 29

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Real Estate 2018 Case study Audley Retirement Syndicated Revolving Credit Facility Background Audley Retirement Audley is a luxury retirement village owner operator and developer with 19 village locations around the UK Audley have an ongoing development programme which will see the company greatly expand the number of sites in its portfolio over the coming 5 years Flexible debt financing was essential to allow the company to complete its pipeline and provide ongoing capital JCRA along with Audley identified a 125 million requirement for funding in the form of a revolving credit facility which would allow the debt balance to fluctuate in step with sales income and also development costs JCRA was mandated to obtain debt funding in a sector that is relatively unknown to lenders particularly when considering the scale of the request and the type of funding required 28 Our approach JCRA and Audley built a cashflow model and worked closely together to identify the key features required for this financing in order to allow Audley to follow through on its business plan We prepared all the necessary documentation and analysis to present our request for finance to prospective lenders and then worked alongside them to explain some of the more complicated features of the request JCRA worked with multiple lending partners to bring together various offers of lending and formulate a syndicate of lenders able to commit to a common funding structure We advised Audley on the most suitable combination of lenders to achieve the best funding structure for Audley and then negotiated with those lenders to agree a common set of terms JCRA then worked with the lenders to achieve full credit approval and assist through the documentation and DD process 125m requirement for funding identified First 100m RCF provided to this sector Benefits Achieved a well rounded ongoing funding package for Audley Bespoke covenant suite that JCRA refined ticking the boxes both for our client in terms of functionality and practical use and the lenders in terms of managing their risk exposure Competitive pricing including an improved margin on refinance of existing lending A first for the sector on such a scale first 100m RCF provided to the luxury retirement village sector An effective hedging strategy drastically reducing the interest rate exposure Audley will encounter throughout the term of the loan A highly satisfied client I was impressed with JCRA s knowledge of the prospective lenders and their tenacious approach to getting this unique facility for the sector across the line 29

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Real Estate 2018 Case study Dean Reddyhoff Portfolio of marinas refinancing Background Dean Reddyhoff D R owns and operates a portfolio of marinas located on the South Coast of England The firm was acquired by a new shareholder group in 2015 by means of a rescue financing funded by junior notes Senior debt was raised shortly after JCRA was mandated to obtain competitive loan terms to refinance some of the junior notes and existing senior debt The request was for Senior debt corresponding to 60 LTV secured by the portfolio of marinas 5 year term funding allowing flexibility for an exit Ability to distribute cash to the parent Our approach After reviewing the existing portfolio of assets and understanding the client s strategy going forward JCRA together with D R and the new shareholder group identified the key features required for this transaction JCRA presented the proposal to a small number of carefully selected potential lenders and invited them to provide their best funding offers JCRA advised D R on the preferred set of terms by leading term sheet drafting and negotiation JCRA then liaised between D R and the preferred lender until reaching final credit approval We also assisted with legal documentation from first draft to financial close JCRA s advice extended to the unwind of the existing hedging position and to the set up of a new hedging strategy 14m increase in borrowing capability 8 3x ND EBITDA 7 year tenor Benefits Achieved highly competitive and flexible terms due to our ability to benchmark offers and access lenders which have appetite for this type of asset JCRA successfully marketed the transaction as a Real Estate financing piece eliminating the requirements for leverage restrictions and instead focusing on LTV for debt sizing This allowed D R to increase its borrowing capability from 16m to 30m while maintaining healthy ICRs and achieving ND EBITDA of 8 3x The financing closed with a 7y tenor exceeding initial expectations of a 5y with limited back ended amortisation Flexibility to allow the shareholder group to exit without punitive prepayment fees or onerous breakage costs A satisfied client Our thanks to the team a great result for the business and it was a pleasure to work with JCRA 30 31

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Real Estate 2018 Case study Dean Reddyhoff Portfolio of marinas refinancing Background Dean Reddyhoff D R owns and operates a portfolio of marinas located on the South Coast of England The firm was acquired by a new shareholder group in 2015 by means of a rescue financing funded by junior notes Senior debt was raised shortly after JCRA was mandated to obtain competitive loan terms to refinance some of the junior notes and existing senior debt The request was for Senior debt corresponding to 60 LTV secured by the portfolio of marinas 5 year term funding allowing flexibility for an exit Ability to distribute cash to the parent Our approach After reviewing the existing portfolio of assets and understanding the client s strategy going forward JCRA together with D R and the new shareholder group identified the key features required for this transaction JCRA presented the proposal to a small number of carefully selected potential lenders and invited them to provide their best funding offers JCRA advised D R on the preferred set of terms by leading term sheet drafting and negotiation JCRA then liaised between D R and the preferred lender until reaching final credit approval We also assisted with legal documentation from first draft to financial close JCRA s advice extended to the unwind of the existing hedging position and to the set up of a new hedging strategy 14m increase in borrowing capability 8 3x ND EBITDA 7 year tenor Benefits Achieved highly competitive and flexible terms due to our ability to benchmark offers and access lenders which have appetite for this type of asset JCRA successfully marketed the transaction as a Real Estate financing piece eliminating the requirements for leverage restrictions and instead focusing on LTV for debt sizing This allowed D R to increase its borrowing capability from 16m to 30m while maintaining healthy ICRs and achieving ND EBITDA of 8 3x The financing closed with a 7y tenor exceeding initial expectations of a 5y with limited back ended amortisation Flexibility to allow the shareholder group to exit without punitive prepayment fees or onerous breakage costs A satisfied client Our thanks to the team a great result for the business and it was a pleasure to work with JCRA 30 31

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Real Estate 2018 Real Estate 2018 A selection of recent transaction highlights 32 Retail Interest Rate Hedge Adviser Portfolio of Assets FX Hedge Adviser Commercial Interest Rate Hedge Adviser Office Interest Rate Hedge Adviser REIT IPO Interest Rate Hedge Adviser Student Accommodation Interest Rate Hedge Adviser Office Interest Rate Hedge Adviser Portfolio of Assets Sole Debt Adviser Portfolio of Retirement Villages Debt and Hedging Adviser Healthcare Debt Adviser 33

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Real Estate 2018 Real Estate 2018 A selection of recent transaction highlights 32 Retail Interest Rate Hedge Adviser Portfolio of Assets FX Hedge Adviser Commercial Interest Rate Hedge Adviser Office Interest Rate Hedge Adviser REIT IPO Interest Rate Hedge Adviser Student Accommodation Interest Rate Hedge Adviser Office Interest Rate Hedge Adviser Portfolio of Assets Sole Debt Adviser Portfolio of Retirement Villages Debt and Hedging Adviser Healthcare Debt Adviser 33

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Social Housing 2018 Social Housing 2018 Social Housing JCRA s social housing team advised on and arranged a record 2 3bn of funding in 2018 across new banking facilities and capital market issuance However 2018 closed quietly against a backdrop of political uncertainty across Europe active Legacy lenders to the sector are looking to defend their market share and diversify their balance sheets New lenders to the sector have contributed significantly to the competitive environment with several new entrants particularly European banks The result is materially reduced pricing for borrowers both in the costs of arranging debt and in the margins of actual borrowing with bank finance about 20 cheaper than it was just 18 months ago Duncan Salter Head of Social Housing The 2 3bn that JCRA helped raise last year was evenly distributed across bank debt private placement lenders and the public debt markets Clients have sought to take advantage of this appetite from different sources to secure forward funding This included undrawn bank facilities deferrals for up to two years on private placements or creating retained bonds to be issued in public markets in the future Public capital markets were definitely challenging in 2018 with UK investors somewhat unenthused by new issues from the sector Competitive lending environment The housing sector s banking market has been particularly 34 However while markets have been concerned about rising interest rates this has not really come to pass The 10 year Gilt started the year at c 1 3 in early January 2018 and has started 2019 not far off that same level The current Bank rate is 0 75 and it is expected to remain there until Q3 2019 Brexit outcomes aside Public capital markets were definitely challenging in 2018 with UK investors somewhat unenthused by new issues from the sector Social housing investors are a small subset of the market and their appetite for long dated debt issuance is limited This was reflected in widening credit margins by over 20 during 2018 the lowest at 118 in February and the widest at 160 in June JCRA s highlights in 2018 were the private placements for Vivid and Newlon where the margin pricing achieved was unusually below that of the equivalent public market issues and the inaugural Bromford public deal which had the second lowest margin across the entire sector in 2018 Of the 3 4bn issued by the sector as a whole in the public market over 25 of that volume was advised on by JCRA Value in UK social housing US investors were the leading light for some borrowers mainly because UK social housing issues offered significant value compared to the US s domestic investment alternatives When borrowers positioned themselves properly for US investors with a rating the results were extremely positive The sector generally approached 2018 as a year to raise debt finance and while the approaches differed housing associations have sought to ensure they will not be left short in case of a liquidity squeeze Housing associations have identified liquidity risk as one of the core risks to be managed in 2019 and beyond We believe there will be a rush to complete a number of new facilities before the end of March 2019 We believe there will be a rush to complete a number of new facilities before the end of March 2019 After this date we are expecting the market to slow as the Brexit outcome is revealed If the uncertainty subsides and markets can move on from Brexit the sector will continue to raise debt in the second half of 2019 but we predict this at lower levels than 2018 The key issue for us is to ensure we continue to broaden the potential investor base so that our clients can access the most competitive cost of funding 35

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Social Housing 2018 Social Housing 2018 Social Housing JCRA s social housing team advised on and arranged a record 2 3bn of funding in 2018 across new banking facilities and capital market issuance However 2018 closed quietly against a backdrop of political uncertainty across Europe active Legacy lenders to the sector are looking to defend their market share and diversify their balance sheets New lenders to the sector have contributed significantly to the competitive environment with several new entrants particularly European banks The result is materially reduced pricing for borrowers both in the costs of arranging debt and in the margins of actual borrowing with bank finance about 20 cheaper than it was just 18 months ago Duncan Salter Head of Social Housing The 2 3bn that JCRA helped raise last year was evenly distributed across bank debt private placement lenders and the public debt markets Clients have sought to take advantage of this appetite from different sources to secure forward funding This included undrawn bank facilities deferrals for up to two years on private placements or creating retained bonds to be issued in public markets in the future Public capital markets were definitely challenging in 2018 with UK investors somewhat unenthused by new issues from the sector Competitive lending environment The housing sector s banking market has been particularly 34 However while markets have been concerned about rising interest rates this has not really come to pass The 10 year Gilt started the year at c 1 3 in early January 2018 and has started 2019 not far off that same level The current Bank rate is 0 75 and it is expected to remain there until Q3 2019 Brexit outcomes aside Public capital markets were definitely challenging in 2018 with UK investors somewhat unenthused by new issues from the sector Social housing investors are a small subset of the market and their appetite for long dated debt issuance is limited This was reflected in widening credit margins by over 20 during 2018 the lowest at 118 in February and the widest at 160 in June JCRA s highlights in 2018 were the private placements for Vivid and Newlon where the margin pricing achieved was unusually below that of the equivalent public market issues and the inaugural Bromford public deal which had the second lowest margin across the entire sector in 2018 Of the 3 4bn issued by the sector as a whole in the public market over 25 of that volume was advised on by JCRA Value in UK social housing US investors were the leading light for some borrowers mainly because UK social housing issues offered significant value compared to the US s domestic investment alternatives When borrowers positioned themselves properly for US investors with a rating the results were extremely positive The sector generally approached 2018 as a year to raise debt finance and while the approaches differed housing associations have sought to ensure they will not be left short in case of a liquidity squeeze Housing associations have identified liquidity risk as one of the core risks to be managed in 2019 and beyond We believe there will be a rush to complete a number of new facilities before the end of March 2019 We believe there will be a rush to complete a number of new facilities before the end of March 2019 After this date we are expecting the market to slow as the Brexit outcome is revealed If the uncertainty subsides and markets can move on from Brexit the sector will continue to raise debt in the second half of 2019 but we predict this at lower levels than 2018 The key issue for us is to ensure we continue to broaden the potential investor base so that our clients can access the most competitive cost of funding 35

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Social Housing 2018 Case study 250m fundraising and A credit rating for Karbon Homes Background Karbon Homes is one of the largest housing associations in the North of England owning and managing nearly 30 000 homes Our approach JCRA worked with Karbon for 12 months to develop a suitable financing solution including a shorter term bank facility Karbon plans to build more homes in the North East for which it requires up to 250m in long term funding For long term funding a public bond or private placement were deemed the best solutions though given market volatility choosing a particular market was difficult Karbon had a number of relatively high cost bank facilities in place for which it was seeking cheaper long term funding On this basis JCRA advised on the selection of joint lead managers who were able to execute in either market to provide flexible decision making JCRA analysed the current market potential pricing and flexibility of each option advising Karbon a public bond issue would achieve the best outcomes 250m in long term financing raised 153bps margin of Landmark debut A rating achieved Benefits Karbon was able to achieve longer term funding than it would have from banks with a 29 year all in rate of 3 50 for 150m raised with 100m retained for future sale without any corporate covenants Karbon was able to repay some of its more expensive bank facilities reducing long term interest costs allowing Karbon to build more homes Strong debut issue reflecting substantial investor appetite for Karbon and the North East This initial issue provides a good foundation for future capital markets investment A rating was required to issue a public bond JCRA assisted Karbon in achieving an A rating currently the highest credit rating in the North East 36 37

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Social Housing 2018 Case study 250m fundraising and A credit rating for Karbon Homes Background Karbon Homes is one of the largest housing associations in the North of England owning and managing nearly 30 000 homes Our approach JCRA worked with Karbon for 12 months to develop a suitable financing solution including a shorter term bank facility Karbon plans to build more homes in the North East for which it requires up to 250m in long term funding For long term funding a public bond or private placement were deemed the best solutions though given market volatility choosing a particular market was difficult Karbon had a number of relatively high cost bank facilities in place for which it was seeking cheaper long term funding On this basis JCRA advised on the selection of joint lead managers who were able to execute in either market to provide flexible decision making JCRA analysed the current market potential pricing and flexibility of each option advising Karbon a public bond issue would achieve the best outcomes 250m in long term financing raised 153bps margin of Landmark debut A rating achieved Benefits Karbon was able to achieve longer term funding than it would have from banks with a 29 year all in rate of 3 50 for 150m raised with 100m retained for future sale without any corporate covenants Karbon was able to repay some of its more expensive bank facilities reducing long term interest costs allowing Karbon to build more homes Strong debut issue reflecting substantial investor appetite for Karbon and the North East This initial issue provides a good foundation for future capital markets investment A rating was required to issue a public bond JCRA assisted Karbon in achieving an A rating currently the highest credit rating in the North East 36 37

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Social Housing 2018 Case study Newlon raising 135m from the private placement market 38 Background Newlon is a mid sized housing association with a significant development programme that was looking to fund long term development aspirations Our approach Reviewed the business plan to understand the funding requirements and any potential impact to the Moody s rating Funding was drawn in multiple tranches 55m now and the balance deferred Agreed with Newlon an approach to investors focusing on engaging with new US investors Borrower had approached the private placement market back in 2012 and wanted to follow the 2012 terms and conditions Prepared a detailed tender document and approached six arrangers 135m raised 4x over subscription of initial book 3 34 average cost of debt Benefits Raised 135m after the initial book was 4x over subscribed Achieved bids from a number of North American investors including a first time investor to the sector Average cost of debt was 3 34 against a public deal benchmark of at least 3 45 Assisted in the preparation of the investor presentation Funding was in two tranches with the deferred simply being priced at the forward gilt rate with no further premium Ensured chosen arranger remained focused on US investor pool Terms of the deal essentially followed their existing 2012 Note Purchase Agreement 39

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Social Housing 2018 Case study Newlon raising 135m from the private placement market 38 Background Newlon is a mid sized housing association with a significant development programme that was looking to fund long term development aspirations Our approach Reviewed the business plan to understand the funding requirements and any potential impact to the Moody s rating Funding was drawn in multiple tranches 55m now and the balance deferred Agreed with Newlon an approach to investors focusing on engaging with new US investors Borrower had approached the private placement market back in 2012 and wanted to follow the 2012 terms and conditions Prepared a detailed tender document and approached six arrangers 135m raised 4x over subscription of initial book 3 34 average cost of debt Benefits Raised 135m after the initial book was 4x over subscribed Achieved bids from a number of North American investors including a first time investor to the sector Average cost of debt was 3 34 against a public deal benchmark of at least 3 45 Assisted in the preparation of the investor presentation Funding was in two tranches with the deferred simply being priced at the forward gilt rate with no further premium Ensured chosen arranger remained focused on US investor pool Terms of the deal essentially followed their existing 2012 Note Purchase Agreement 39

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Social Housing 2018 Social Housing 2018 A selection of recent transaction highlights 40 Private Placement Bank Restructuring RCF Public bond Private Placement Public bond Treasury Advisory Services Public bond Revolving Credit Facility Revolving Credit Facility Treasury Advisory Services Private Placement 41

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Social Housing 2018 Social Housing 2018 A selection of recent transaction highlights 40 Private Placement Bank Restructuring RCF Public bond Private Placement Public bond Treasury Advisory Services Public bond Revolving Credit Facility Revolving Credit Facility Treasury Advisory Services Private Placement 41

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