ARA Venn further amends covenant on guarantees scheme
The provider of the government-backed Affordable Homes Guarantee Scheme (AHGS) has further amended its covenant ask of registered providers, following continued engagement with the sector.
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Social Housing reported in June that the scheme, which is run by investment firm ARA Venn through its specialist funding vehicle Saltaire Finance, had softened its covenant offer in response to some borrowers being put off by the original requirements.
The £3bn programme is designed to offer access to cheaper finance for social housing providers through the issuance of bonds that benefit from a government guarantee.
In keeping with the original scheme rules, published at its launch in October 2020, of a “minimum borrower corporate interest cover ratio of 1.0x” needing to be maintained at all times, the initial requirement was based on EBITDA MRI at 100 per cent. This was tested annually via a one-year look-back (ie based on expenditure within the previous financial year).
As reported in June, this look-back was then extended to three years as an aggregate, so that any spend on major repairs in one year would be assessed as part of spend across the longer period, alongside an annual EBITDA test at 1.10x.
ARA Venn has now further amended this, with changes made in mid-July to remove the MRI component of the interest cover covenant altogether, following approval from the government.
The scheme has now moved to a 1.20x EBITDA-only requirement, tested annually.
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ARA Venn told Social Housing that it believed a stable position had now been reached that works for all parties.
Richard Green, partner at ARA Venn and portfolio manager for the AHGS, said: “We have been engaged in a constructive ongoing dialogue with the market and stakeholders regarding the schemes interest cover covenant for some months.
“It has been an iterative process, and we are grateful to those who contributed, the result of which we believe is an approach now that all parties are comfortable with. We have a very healthy pipeline of loans and we look forward to continuing to support the sector.”
Membership body the National Housing Federation (NHF) acknowledged the change in a statement on its website, which it said came in response to engagement with providers around the challenges the sector faces “in particular… in relation to meeting net-zero targets and the associated uncertainty around the profile of future capital expenditure”.
It added: “The NHF would like to thank Ara Venn… for their work to resolve this issue, which will enable many more housing associations to access government backed low cost debt.”
Earlier this month, Berkshire-based Silva Homes became the latest association to access funding through the scheme, taking on a £28.5m loan over a 30-year period.
The lending to the 7,500-home provider was funded through bonds issued by the medium-term note programme of Saltaire Finance. The bonds mature in May 2052 and have an all-in rate of 3.5 per cent.
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