Clarion continues ESG drive with £200m sustainability-linked loans with new lenders

KPIs are measured over the term of the loan, and the success of the metric is measured during the immediate preceding financial year.

BNP Paribas signed the sector’s first SLL in 2018 with L&Q, shortly after re-entering the sector. Since then, it has signed three other SLLs – with Peabody and Optivo, and now Clarion.

Gareth Francis, director of treasury and corporate finance at Clarion, said that the housing association is “committed to sustainability in all that [it does]”, including the selection of its banking group.

“In SMBC we have a partner who is aligned to our thinking and is therefore an excellent fit for the group. The bank understands our mission and the way we go about delivering it and have the credentials and capacity to support the group for many years to come.”

He added: “Our successful jobs and training programme is the largest of its kind and last year helped over 4,000 people into employment. It is fantastic that banks such as BNP Paribas are recognising the impact of this work and providing funding at a lower interest rate, the savings from which we will reinvest back into providing new affordable homes and improving the lives of our residents.”

Mr Francis told Social Housing that adding the new banks was an opportunity to add capacity in view of the fact that a number of lenders in its existing banking group were near to their counterparty exposure limits for Clarion, post-merger. The group formed from the merger of Affinity Sutton and Circle Housing in 2016.

Mr Francis said: “It’s been in the strategy since merger to have a measured expansion of our banking group. In the medium term, we will need more debt – and we may well want to look outside of sterling from a capital markets perspective.”

Diversification is a core motivation for the group in this regard: “There is a slight concentration risk in sticking to the same sources of funding, and while you don’t want to try and be all things to all people and diversify too much, it’s about cautious diversification.”

Key to Clarion’s strategy is that its partners have the capability and capacity to provide products and services relevant to its corporate objectives and the enabling funding strategy, Mr Francis said.

This could see SMBC or BNP Paribas supplementing the association’s existing banking group to provide swap lines on non-sterling transactions, for example.

In the medium to longer term, it could also see the addition of further banking partners. “When we do, we will first and foremost be looking for partnership with those with whom we have a good fit – those that are aligned to our thinking,” Mr Francis said.

“We want to have partnerships that are also committed to sustainability as well as… having the capacity to partner with us on funding the group’s ambitions.

“Whether that becomes a sustainability-linked loan – I’d like to think so, but I wouldn’t say that it is an absolute imperative.”

Mr Francis said that the funding was put in place to hold liquidity in an efficient format while managing a number of “large outflows” in Clarion’s current pipeline.

Its landmark £350m sustainable bond – a sector first – on 15 January was then timed to take advantage of favourable market conditions, and as such enabled Clarion to meet its short-term funding requirements early.

This has meant having current liquidity higher than its funding plan and internal treasury policy require – standing at £0.7bn at 31 December, prior to the addition of the £350m bond – but Clarion has “taken significant actions to mitigate the cost of carry”, Mr Francis said.

For example, following settlement of the bond proceeds last week, drawn RCFs are being paid down, a process that will complete this week, Mr Francis said.

Liquidity will then be held in line with the group’s cash policy with the majority being held in fully secured committed undrawn RCFs.

The £200m new facilities are both secured through Clarion’s £5.9bn property security pool.

Devonshires acted for Clarion on both deals, with funders’ advice from Addleshaw Goddard.