DGHP agrees £149m funding package as it completes partnership with Wheatley

He added: “Therefore we were seeking funding that would be flexible going forward; we talked to a number of investors and lenders, [and] through that process identified that M&G and RBS had the best offers to fit with what we were looking for.”

 

The right timing

 

DGHP and Wheatley needed to work within a short time frame in order to have the new finance in place by the December board meeting.

 

This meant that the inclusion of an initial six-month unsecured period on the M&G funding was an important factor, Mr Henderson said.

 

“It was something that we asked M&G if they could do and we were delighted that they agreed on this occasion to provide us with that flexibility. That enabled us to complete the finance-raising as quickly as we did before Christmas.”

 

Meanwhile the maturities on the three tranches – including Wheatley’s longest maturity to date at 35 years – are designed to stagger the repayments against existing liabilities in the wider group. The smallest, 24-year tranche was chosen to avoid a clash with a larger chunk of debt maturating in 25 years’ time with regard to a public bond within the group.

 

Both new facilities are lent directly to DGHP, taking DGHP’s total debt from £167m before the process to £169m.

 

“We have got the flexibility in both facilities to novate them at a future date to our group treasury vehicle, but the purpose of the funding will be to support DGHP in particular,” Mr Henderson said.

 

Existing facilities for DGHP before the refinance included £111.08m from Dexia, £41.24m from The Housing Finance Corporation, and £15m of funding through Allia charitable bonds.

 

Wheatley could not disclose whether any lenders had left during the process.

Partnership working and tenant focus

 

Following the partnership, treasury will be managed centrally from Glasgow, but DGHP will continue to operate as an independent landlord to its tenants, maintaining its brand and board.

 

Alongside providing support in the refinance – including a further piece of fundraising yet to complete – Wheatley will help its new partner to work towards compliance with regulatory standards in areas in which it is currently falling short.

 

This includes investing in existing homes to meet the Scottish Housing Quality Standard, for which only 66.2 per cent of DGHP’s homes – compared with the Scottish average of 93.7 per cent – complied at the time of its 2018/19 landlord regulatory report.

 

Wheatley hopes to achieve compliance in this area by the time of the annual assurance statement to the Scottish Housing Regulator in October, and the plan to invest into existing homes formed a key part of its offer to tenants.

 

DGHP will also cap rent rises at two per cent over three years, compared with above three per cent rises that had previously been assumed in DGHP’s business plan.

 

“We’re always looking to keep rents as affordable as we can,” Mr Henderson said. “DGHP’s [financials] supported that, and it had a good financial base so we felt that was a really important part of the offer we wanted to make to tenants.”

 

The group will also increase the provider’s local staffing budget to enable a smaller patch size for housing officers, and ensure that frontline staff are “much more empowered to make decisions that are right for the customer”, Mr Henderson said.

 

He added: “Some of that is possible because of the underlying financial strength DGHP had. The issues it had were not financial issues, they were more in the line of governance.”

 

The Scottish Housing Regulator had increased its engagement level with DGHP to ‘high’ in December 2018, after an independent investigation identified a number of “serious issues” that the regulator said raised questions about the provider’s internal control system and governance.

 

Now, following the constitutional partnership, DGHP’s engagement plan is contained within Wheatley’s, with the group required to provide regular updates on a number of factors regarding the process of integration and towards achieving full compliance.

 

In financial terms, the addition of DGHP will mean improved gearing and financial strength for Wheatley.

 

Valuations are currently being prepared for the year end, but Mr Henderson said the group anticipates a gearing percentage reduced to the “low 50s”. That compares with 56 per cent at 31 March 2019, according to its annual accounts.

 

Where turnover is concerned, DGHP will add £48m to a forecast £374m for the rest of the group, giving a combined turnover for Wheatley Group of £422m.

 

On surplus, the heightened investment in homes for DGHP is expected to lead to a £7m deficit on after tax in the subsidiary’s first year, before returning to a surplus of around £5m next year, Mr Henderson said. Wheatley, excluding DGHP, is forecasting £51m for the year (excluding the gain on business combination from DGHP).

 

As Wheatley prepares a final piece of the funding jigsaw for DGHP’s three to four-year business plan, with the agreement of a further piece of funding, the core focus remains delivering on its offer to tenants, Mr Henderson said.

 

“The ballot was the key thing because that gives you a barometer of what tenants think of what you’re saying. So we have to deliver on those promises now – that’s the most important thing for us.”