Risks

Level of risk

Citylife believes the risks of investment in the East London Bond to be very low.

Places for People Homes

The loan to Places for People Homes (PfPH) will be made for a term of five years and at a commercial rate of interest. The total amount repayable under the loan including interest will equal the amount required by Citylife to repay bondholders in full. The loan is assigned to an independent trustee (see below), which means that investors are taking credit risk on PfPH’s ability to repay the loan, not on Citylife’s financial standing.

PfPH has a credit rating from Moody’s Investors Service of Aa3 with a stable outlook. This means that its obligations “are judged to be of high quality and are subject to very low credit risk”. The rating is composed of a baseline credit assessment of 8 (on a scale of 1 to 21, where 1 represents the lowest credit risk); and a high likelihood of support from the UK government (Aaa stable outlook) to prevent a default in case of need.

The Guarantee

PfPH (as described above) has a credit rating of Aa3, but some investors may wish to have additional protection against the risk of PfPH defaulting on its obligations under the loan. Therefore, Citylife will be offering two types of bonds: Series I bonds and Series II bonds.

The Series I bonds will have the benefit that the proportion of the loan to PfPH which backs the Series I bonds will be supported by a guarantee from either or both Barclays Bank PLC and The Co-operative Bank PLC. The guarantors will decide, together with Citylife, the proportion of the loan that they will each guarantee, and the aggregate of these proportions will equal the proportion of the loan which backs the Series I bonds.

In the event that Places for People Homes does not pay some or all of the loan when due, then each guarantor will be liable to pay the proportion of the shortfall equal to the proportion of the loan that they agreed to guarantee. Neither guarantor will be liable to pay an amount greater than this agreed proportion in any circumstance, including the default of the other guarantor. The funds received by Citylife from the guarantors will go to repay the Series I bonds (but not the Series II bonds). It is important to note that the guarantee is not a guarantee of the Series I bonds, but of the proportion of the loan that supports the Series I bonds.

The guarantors will charge 3.75 per cent of the total amount of the Series I bonds over the period of the loan as a guarantee fee.  This charge will be deducted from the funds that the charities will receive. However, investors in Series I bonds can offset this cost if they wish by making an additional donation at the point of application.

Unlike the Series I bonds, the investors in the Series II bonds are solely reliant on PfPH repaying the loan in order to be repaid in full when the Series II bonds are due. However, this means that no guarantee fee is deducted from the proceeds of the Series II bonds which go to the charities.

The Trustee

The loan, and any associated guarantee, is assigned to Royal Bank of Canada Trust Corporation Limited as an independent trustee. This means that even if Citylife were to stop trading, the trustee is in place to receive repayment from PfPH and then to pay monies it receives to bondholders at maturity.

Royal Bank of Canada Trust Corporation Limited has not investigated the creditworthiness of Citylife, Places for People Homes or the guarantors and accepts no liability, beyond its duties as trustee, in the event that payment in full is not made on the maturity date.

Possible risks

Like any financial investment, investing in the Bond contains certain risks. Some of the risks that Citylife believes are material are set out below. However, please note that there may be other risks involved in investing in the Bond and certain risks may be due to your individual circumstances. If you are concerned about these risks you must consult your independent financial advisor.

Social investment and access to capital

The East London Bond is a social rather than financial investment. The bonds do not pay interest or provide any capital gain and, except at Citylife’s option (which it may not decide to exercise), the bonds are only repayable on the repayment date. The bonds are transferable, although there is a risk that you may not find a purchaser for bonds, and any purchaser may only be willing to buy the bonds at a discount.

This means that the bonds are not suitable for investors who require income or capital gains from their investment or investors who need ready access to their capital.

Credit risk on Places for People Homes

The bonds are limited recourse to the loan. In the event that Places for People Homes does not or is unable to repay the loan in full (or at all) then bondholders will not be repaid in full (or at all) on the repayment date. The general assets of Citylife are not available to make payments to bondholders.

The Aa3 credit rating of PfPH from Moody’s Investors Service means that its obligations “are judged to be of high quality and are subject to very low credit risk”.

Credit risk on the guarantors

In the event that Places for People Homes does not repay the loan in full (or at all) then bondholders of Series I bonds only may benefit from monies received under the guarantees. However, in the event that the guarantors do not or are unable to pay under their respective guarantees then Series I bondholders will not be repaid in full (or at all) on the repayment date. Any proceeds from the guarantees will be divided equally between Series I bondholders.

Moody’s Investors Service has given Barclays Bank PLC a credit rating of Aa3 and The Co-operative Bank PLC a credit rating of A2.

No guarantee of the Loan for Series II bondholders

In the event that Places for People Homes does not repay the loan in full but monies are received under the guarantees, then such monies will be only be for the benefit of Series I bondholders. Series II bondholders do not benefit from monies received under the guarantees.

Financial Services Compensation Scheme

The Financial Services Compensation Scheme does not apply to an investment in the East London Bond.

Losing contact with Citylife

It is a duty of the bondholder to keep the registrar, on behalf of Citylife, informed of any change of address. If Citylife’s attempt at repayment on the repayment date is unsuccessful, and if bond certificates are not presented within 10 years of the repayment date, the investment is forfeit and will be applied by Citylife for its charitable purposes.

Further information
Please contact us for further information