Housing funding deals double in value over a year

There was a rise in the number and total value of all types of deal analysed. There was a notable rise in the value of bond issues, which doubled to £1.8bn – even though only one more deal was made in 2016/17 than during the previous year.

They included L&Q’s £500m bond, which is the biggest own-name bond in the sector. The total value of institutional loans also grew from £77m to £435m, but again, only one additional deal was made in the second year compared to the first. They included a £275m loan for Trafford Housing Trust, which included funding from Pension Insurance Corporation and BlackRock.

During the two-year period, bonds made up nearly 56 per cent of the £4.74bn raised. Private placements raised £1.19bn while institutional loans, including leasebacks, and retained bond sales made up almost all of the remaining sum.

Auditors

A total of £13.3m was paid to auditors by associations whose individual bills were £100,000 or more in 2015/16. This figure, which includes audit fees for accounts and fees for other work, is up from £11.5m in 2014/15. The figures for this part of the report come from the 2015/16 audited accounts of the associations.

The amount paid in audit fees by this group rose nine per cent in 2015/16 to £7.6m, but the amount paid for other work, which can include tax, pensions and restructuring advice, rose 27 per cent to £5.7m. The change in audit fees paid by individual associations varied, with four spending at least 50 per cent more on them in 2015/16 compared with 2014/15, and 11 spending less in 2015/16 than they did in 2014/15.

There were big variations in spend on other work from auditors, with 12 associations spending more than double the amount they spent in 2014/15 – including some with rises of more than 1,000 per cent. However, 20 associations spent less than they had in 2014/15. KPMG continued to be the most used audit firm among the ones that spend more than £100,000 on auditors. BDO and Grant Thornton swapped with PricewaterhouseCoopers, which dropped into fourth.

There were 50 associations with total fees of over £100,000 in 2014/15, and 56 a year later.

The number of housing associations spending more than £100,000 with auditors has been climbing since 2012/13, following a one-off dip the previous year. Similarly, the total amount spent has risen during that time, too. The amount spent on audit fees has been rising since 2012/13, but had particularly large increases in 2014/15 and 2015/16, which were the years when associations prepared for the introduction of FRS 102.

However, the spending on other work with auditors has been more volatile since 2009/10, with rises and falls on alternate years. Yet 2015/16 saw the highest spend on both audit fees and other services of the 10 years in our graph.

Jonathan Pryor, partner in assurance and business services at Smith & Williamson, said preparation for an implementation of the new accounting standard, FRS 102, may have had an impact on fees. ‘I’d expect it would have had an impact on audit fees in 2015/16 and on advisory fees in 2014/15, because that’s when associations were looking at what it demanded.’

An increase in mergers could also have had an effect, with some associations seeking tax advice. But he added: ‘I suspect there are lots of factors. One thing driving up audit fees are audit regulations, which have stepped up enormously.’ Additionally, some associations find they need extra work beyond the scope they described in their tender for audit services, which means they have to pay additional fees for it.

Lawyers

Addleshaw Goddard undertook the largest amount of work for funders in summer 2015 to 2017. Allen & Overy – leaders in 2014/15 – were just behind. There were two deals for which funders’ lawyers were not stated, and two which were retained bond deals, where the legal work would be done as part of the original issue. There was also one private placement where the investor was not named.

As in 2014/15, Trowers & Hamlins continued to work on the largest number of deals for housing associations in 2015 to 2017, followed by Devonshires. CMS, formed from the 2016 merger of leading law firms CMS Cameron McKenna, Nabarro and Olswang, made an appearance for the first time with two deals for Dolphin Living.

Valuers

Savills and JLL continued to work on the largest number of deals analysed in number and total value in summer 2015 to 2017. Other firms – DTZ, Cushman & Wakefield and Mazars – worked on one each, though there were 10 where the valuer was either not stated or it did not involve a valuer because the deals were unsecured.

Advisors

Centrus acted as funding advisor on eight deals – the largest number in our table. Rothschild advised on the largest total value of deals worth more than £1bn, all of which were for L&Q, although it was also arranger for Martlet Homes. However, the deals for which the name of the funding advisor was not given or for which there was no advisor, also totalled just over £1bn.