Bank of England reveals two housing associations among COVID-19 liquidity facility's £16bn of support

Tariq Kazi, head of treasury at Optivo, said: “We see some real advantages of using the scheme. It’s unsecured, low-cost funding and helps us save interest expense compared with our [revolving credit facilities], which remain fully committed and in place.

“And in the near term it means we can help our banks manage their own funding positions by using proceeds to pay down our RCF balances until we need them again in future.

“Having issued our bond a couple of months ago, our liquidity position is more than enough to cover all our contractual commitments, with or without CCFF.”

L&Q said in its Q4 update to the markets last month that its COVID-19 mitigations since March 2020 had included an extra £300m of committed loan facilities, taking liquidity to more than £800m.

The CCFF was launched predominantly to relieve cash flow pressures on investment-grade businesses that may need liquidity support throughout the coronavirus crisis.

It involves the BoE purchasing businesses’ commercial paper – defined as an unsecured, short-term debt instrument issued by a company, with a maturity anywhere between a week and a year – to help them with cash flow and to pay wages and suppliers.

The scheme originally came with a number of confidentiality undertakings for participants, including in some cases not allowing them to go public with whether they qualify at all, or to disclose the amount of paper eligible to be sold.

However, some of the major house builders – including Redrow and Taylor Wimpey – had reported to the markets that they had qualified for the scheme, with Redrow eligible to sell £300m of paper. Neither appear on the latest list.

Developer Lendlease has sold £300m however.

V1/V2 debate

As Social Housing reported in April, the BoE is only considering V1-rated housing associations and has rejected applications from compliant V2 regulatory gradings, despite lobbying from parts of the sector to have this overturned.

It was also understood that the BoE is rejecting some HAs based on size, with a requirement under the initiative that it will support only organisations that make “a material contribution to the UK economy”.

There has been much debate in the sector after a number of larger developing HAs were moved to V2 as part of the Regulator of Social Housing’s recognition of the growing risk profile across the sector, first reported by Social Housing in 2017.

The BoE declined to comment on the V2 decision.

Its website says that along with viability gradings, the bank will assess housing associations’ revenue streams, and whether they hold an investment-grade credit rating or are deemed to have equivalent financial strength by their banks.

It adds: “These criteria reflect the underlying differences between corporates and housing associations, and associated risks, including the fact that housing associations typically rely on secured bank funding.”

Eligible issuers require a minimum short-term credit rating of A-3, P-3, F-3, or R3 from at least one of Standard & Poor’s, Moody’s, Fitch and DBRS Morningstar as at 1 March 2020.