Irish housing association secures development finance and longer-term facility in sector first for the country

AIB is lending its portion twice so had to obtain credit approval for around €30m of funding.

There are two facilities: facility A is for the construction loan of circa €15m, which will be refinanced out on Circle’s balance sheet by facility B, a circa €15m 30-year long-term loan.

Facility A is variable as the exact levels of monthly/bi-monthly payments were unknown and therefore difficult to fix a rate. Circle hopes to draw down facility B in a year’s time.

Circle implemented an 18-month forward fix for facility B. This is to mitigate against the risks of interest rates rising for the second facility because facility B is being used to repay facility A.

The provider also put in place contingencies to manage the risks around construction costs and give assurances that overruns will be avoided.

Circle worked on the construction and procurement side to manage costs and transfer of risk and there is a contingency sum built into the overall cost of construction.

Typically, SPV structures are used for development projects, however Centrus, which acted on the deal, said that given the limitations presented by Circle’s charitable status, this solution was not available.

The advisor said the funding and risk management solutions sat inside the provider’s balance sheet.

Furthermore, Circle receives a separate payment stream via the Payment and Availability model, from a local authority, paid monthly or quarterly. The provider will use this to pay back AIB, making the loan fully amortising over the 30 years.

Colin Creedon, director of finance and corporate services at Circle VHA, said: “What is unique about this funding facility is it is the first time a pillar bank has provided the finance for both the development and longer-term investment facility.

“It was a challenging development to get commenced due to the economic circumstances with higher construction input costs and increased interest rates. However, none of us lost sight of the ultimate objective of getting 47 homes built.”

Gavin Friel, director at Centrus, said: “It’s a completely new financing structure for the sector, for the bank, and for Circle.

“What makes this deal – and indeed a lot of what Circle has done – innovative is the private funding structure. They’ve gone previously to the private markets, developed relationships and invited the private market into the funding conversation in order to assist with delivering. AIB, which Circle has worked with previously, is a strong and committed funder to the AHB sector.

“With the financing of the sector largely being delivered via the HFA and developers working to deliver turnkey with that finance as the backdrop, this deal is a pathfinder in its own right as Circle is acting as the developer and AIB is funding both the construction of the apartments and the long-term take out via a single integrated facility.”

John Hannigan, chief executive of Circle VHA, said: “I think one of the things Circle is known for is it is constantly looking for innovative ways to actually address the fact that we’re 100 per cent debt funded by the state.   

“Bringing in additional funders from the private sector is really important. That in my view is something that we have to continue, it’s becoming a regulatory issue in that the sector’s overexposed to the state bank, effectively.

“But it’s also an issue from the point of view that if we’re going to have capacity to deliver on the housing emergency that we have in Ireland, we need to look at all options and bring in additional funders to assist us in doing that.”

Mr Creedon said Circle VHA has a large pipeline of around €200m over the next three to five years to deliver new affordable homes as there is a huge demand for social housing.

For the deal, gilt was mid swaps and EUV-SH and MV-ST were both used as security.

Centrus worked as Circle VHA’s funding advisor and Mason Hayes & Curran was the landlord’s legal advisor. Philip Lee served as AIB’s legal advisor.