BPHA completes bank refinance and retained bond sale to free up over £150m

The underlying surplus is derived from an operating surplus of £55.9m, before net interest costs of £34.7m. This was a slight increase from £55.4m in the previous year.

 

In addition, turnover climbed from £117.4m to £127.7m for the core operating business.

 

Julian Pearce, chief financial officer of BPHA, told Social Housing that the benefits of terminating the expensive hedges outweighed the costs, as the housing association can now borrow at “substantially” lower interest rates.

 

He said the provider now had “much better interest cover going forward” due to a “much lower” cost of capital, rather than “really expensive hedges”.

 

BPHA wanted to achieve more modern bank agreements, with covenants that were more relevant to it, Mr Pearce added, and was now in a “much better financial position”.

 

He added that the social landlord was able to afford the restructuring because it was in a good place financially after a “good year”.

 

In taking the £22.7m cost of terminating interest rate hedges, BPHA was “comfortably” within all of its interest rate covenants, Mr Pearce said.

 

“We’re very strong,” he told Social Housing. “We’re generating enough cash that we can say, ‘We don’t need to pay those expensive hedges anymore, let’s take the pain now, get rid of them’, and let’s move on to what I would call a more sustainable, more normal interest rate cost for the company.

 

“So, we felt we could have a better weighted average cost of capital going forward, and it’s more sustainable, [with] lower ongoing interest costs, but also provides a platform for growth.”

 

Modernised funding

 

BPHA has also restructured away from an arrangement with a syndicate of five banks with “old-fashioned covenants” to “more modern bank agreements with covenants that are more relevant to us”, Mr Pearce said.

 

This meant the housing association was no longer tied into a syndicate of five banks with different views on appetite and risk, he added.

 

Instead, BPHA now has a different arrangement with four banks, with the ability to expand in different routes depending on the risk appetite of the individual bank, and the power to refinance the way it wants to.

 

Mr Pearce said: “That’s given us a huge amount of more flexibility without having to move at the pace of the slowest, most onerous bank, and they’ve all got slightly different approaches and agendas and risk appetites.”

 

He added: “We wanted to cut down the number of banks, make it more manageable, and give us the flexibility to do refinancing the way that we want to.”

As part of the restructuring, BPHA changed its covenants, moving from a more restrictive debt-per-unit model to a gearing covenant that’s more flexible.

 

Net debt per unit does not increase as the housing association grows, whereas a gearing covenant as a percentage of the housing assets is more flexible and allows BPHA to keep borrowing more to fund more growth.

 

“I think that’s starting to be a much more common covenant, as opposed to the old-fashioned net debt per unit,” Mr Pearce said.

 

The finance chief added that there can be restrictions on other areas, such as joint ventures or on-lending, which depend on the risk appetite of individual banks. The new series of bilateral facilities therefore gives more flexibility in those areas.

 

For example, if one bank does not like BPHA entering into joint ventures, the provider can now refinance with a different arrangement with that bank.

 

Previously, with all five banks tied together in one syndicate, the landlord needed to negotiate with all five, which can take a “really long time”, Mr Pearce said.

 

Retained bond sale

 

BPHA’s £75m retained bond sale was the final tranche of the housing association’s £350m public bond due on 11 April 2044.

 

It was priced on 19 March this year in what marked the first own-name public bookbuild from the social housing sector since Sovereign Network Group came to market in January.

 

Mr Pearce said the order book remained well supported and allowed final terms to be set at gilts plus 87 basis points, with a final order book above £200m.

 

“Notably, pricing was inside where the original bonds were quoted at the time of announcement and therefore represents a negative new issue concession, a very good result with a re-offer yield of 5.3 per cent,” he said.

 

Funding development growth

 

Mr Pearce said BPHA had increased its liquidity to around £260m, giving the housing association “substantial” financial resources to fund growth.

 

According to its results, BPHA built or acquired 267 homes in 2023-24, a rise from 223 in the previous year, and increased its investment in new homes from £53m to £60m over the same period.

 

Mr Pearce said BPHA had the “financial firepower” to invest in new homes and was hoping to invest more than £60m in development in the current financial year.

 

BPHA was looking at a “good, substantial increase” on the figure of 267 new homes in the current and next financial years, Mr Pearce added, although this depends on the pipeline of development and how quickly that comes to fruition.

 

“We would like to aim towards a 300 mark going forward; it all depends on the opportunities that come our way,” he said.

 

“We wanted to have the financial capacity to invest more to grow faster than we have in the previous year, and we want to start to grow at a higher rate.”

 

Following its abandoned merger plans with Flagship Homes and Futures Housing Group in October 2022, Mr Pearce said BPHA was now focused on growing in its core geographical area of the Oxford and Cambridge arc.

 

BPHA has tended to grow through purchasing Section 106s, but it also wants to expand in other ways, for example via stock acquisitions and joint ventures with developers.

 

Mr Pearce said “flexible banking” was needed to pursue different paths, such as joint ventures.

 

“We want to be the main housing association that provides the best services for customers in [the Cambridge to Oxford arc],” he said.

 

Elsewhere, Mr Pearce said that BPHA’s underlying operating surplus of £56m in 2023-24 was “quite an achievement” when taking into account the seven per cent rent cap, inflation at 11 per cent and “acute pressures on repair costs”.

 

He said BPHA’s financial results exceeded the provider’s expectations. Its core business of social housing lettings rising by around £4m after its cost-minimisation programme helped the provider to cope with the increase in repairs and utility costs.

 

In 2023-24, BPHA’s core operating margin remained the same as in the previous year, at 40 per cent.

 

The provider also retained its top G1/V1 grades from the Regulator of Social Housing and its A+ credit rating from S&P, with a stable outlook.

 

During the year, the housing association invested £39m in maintaining and improving its existing homes, the same amount as in the previous year. The majority (89 per cent) of its homes have an Energy Performance Certificate rating of Band C or above.

 

On the bank restructure BPHA was advised by Centrus, and Devonshires served as the provider’s lawyers.