HAs look to sell short-dated paper to UK’s central bank via new coronavirus emergency facility

News07 Apr 2020Luke Cross

A number of housing associations (HAs) are applying and qualifying for the Bank of England’s (BoE) Covid Corporate Financing Facility (CCFF), enabling them to sell unsecured commercial paper to the central bank.

HAs are getting in line for a new BoE commercial paper facility (picture: Getty)

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Housing associations look to sell short-dated paper to Bank of England via new #coronavirus emergency facility #ukhousing #socialhousingfinance

A number of housing associations are applying and qualifying for the Bank of England’s Covid Corporate Financing Facility #ukhousing #socialhousingfinance #coronavirus

The CCFF has been created to provide funding to larger businesses making a material contribution to the UK economy by purchasing their commercial paper and helping them bolster their liquidity positions.

It is expected to be taken up by some large construction firms and volume house builders, helping them to get through the crisis after they temporarily closed down their sites and the UK government instructed a pause to people buying and selling homes as part of the country’s ‘lockdown’ and social distancing measures.

While the HA sector is broadly seen as having sufficient liquidity at present – both through regulatory requirements and preparations last year for a no-deal Brexit – some providers are looking at the scheme as a cheaper way to borrow.

Setting out its view on the social housing sector yesterday (6 April 2020), credit rating agency Moody’s said the CCFF would also further strengthen the liquidity positions of HAs that qualify. It added that “so far, some HAs have qualified for CCFF”.

Moody’s said that despite “material operational effects” on UK housing associations, strengthened liquidity from reduced spend on development and repairs will enable them to mitigate the impacts of the pandemic.

The liquidity scheme was announced amid a raft of measures signed off by chancellor Rishi Sunak to support business and the economy during the pandemic, alongside the doubling of the Corporate Bond Purchase Scheme (CBPS) to £20bn, which already includes housing association issuance.

The bond-buying auctions – originally set up after the UK voted to leave the European Union in 2016 – are planned to begin today (7 April 2020). The latest bond list, dated 1 April 2020, includes 13 HA names.

The CCFF, however, will see the BoE buy up commercial paper, defined as an unsecured, short-term debt instrument issued by a company, with a maturity anywhere between a week and a year under the CCFF.

The initiative will operate for at least 12 months “and for as long as steps are needed to relieve cash flow pressures on firms that make a material contribution to the UK economy”.

The CCFF has been created to help businesses across a range of sectors to pay wages and suppliers, even while experiencing severe disruption to cash flows.

The BoE’s statement said: “The facility is open to firms that can demonstrate they were in sound financial health prior to the shock, allowing us to look through temporary impacts on firms’ balance sheets and cash flows from the shock itself.

“This means companies that had a short or long-term rating of investment grade, as at 1 March 2020, or equivalent.”

Housing association interest

Ian Johnson, chair of the London G15 finance directors group, said that the facility should help the construction sector as it goes through a difficult period financially.

“The G15 is encouraged by the offer of funding under the Bank of England’s Covid-19 Corporate Financing Facility which, while it is only available for the short term, should assist if the construction sector needs to be ‘pump-primed’ on the return to normal,” he said.

Eleanor James, partner at Trowers & Hamlins, told Social Housing: “We are aware of some larger rated HAs considering accessing the CCFF after first setting a commercial paper programme.

“We would expect the number of associations which would qualify for the CCFF to be fairly limited given the eligibility criteria being applied.”

Ms James added that given the wide-ranging confidentiality undertakings participants have to sign up to, the sector may well never find out who they were. However, some PLCs have already declared to the financial markets their intention to use the scheme.

She added: “HAs haven’t traditionally issued commercial paper but even in times of crisis there is room for innovation and development and so it will be interesting to find out whether this becomes another source of short-term funding for some in the sector over time.”

One treasurer told Social Housing that accessing the facility is not without cost, namely in the form of legal fees.

Patrick Hawkins, director at Savills Financial Consultants, said that finances of HAs are generally robust as a result of the regulatory requirement for 18 months of liquidity and underlying business fundamentals, further bolstered by the halt in development spend.

“The CCFF is there to provide short-term liquidity of up to 12 months. This is in response to the widespread, urgent need for many corporate businesses to shore up their liquidity positions in light of the impact on their finances of COVID-19.

“Although technically many housing associations do qualify for CCFF funding and are making enquiries just in case, the reality is that, for those organisations we know well, they don’t need this support at present.”