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L&G backs Welsh association with £95m as it refinances LSVT debt

News14 Aug 2019Sarah Williams

Newport City Homes has used a £95m private placement from Legal & General Investment Management (LGIM) Real Assets to repay a legacy syndicated facility as it completed a major refinancing of its treasury portfolio.

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L&G backs Welsh association with £95m as it refinances legacy LSVT debt #ukhousing #socialhousingfinance

Alongside the private placement, the restructure saw Newport City Homes agree new five and 10-year revolving credit facilities totalling £30m with existing lenders Barclays and NatWest.

The deal also saw it part ways with its third lender, Nationwide.

Tim Jackson, executive director of finance and resources at Newport City Homes, told Social Housing that the financial restructure had been a “long time coming”, with the association, under the leadership of chief executive Ceri Doyle, keen to instigate a transformation process as it looked to deliver its growth plans.

“That included looking at the existing loan agreement which we had which was £112m with a syndicate of three banks, and it was recognised that the terms of that agreement [having been] set up for an early years LSVT [large-scale voluntary transfer] were quite constraining.”

“The pricing was also changing further into the loan, and we wanted to procure more freedoms as a maturing LSVT, and to look at the pricing of the loans.”

In order to achieve this, and to appeal to investors, Newport City Homes “spent a year sorting [its] finances out” and creating a new business plan, approved by its board in February 2018, with which to approach new and existing funders, Mr Jackson said.

Following an ‘options parade’ from treasury advisor Centrus, Newport City Homes opted to do a full refinancing, and went into loan negotiations with its three lenders.

Newport broke its existing loan fixtures the day after it priced its placement with L&G – during the week in which Boris Johnson became prime minister, and the value of the pound fell as markets reacted to the potential of a no-deal Brexit. The deal completed on 25 July, a day after Mr Johnson entered Downing Street.

“Market movements were quite significant – they were going up and down in the week that we were doing this so we were very conscious to make sure we weren’t exposed to interest rate changes between pricing and breaking of the fixtures we had,” Mr Jackson said.

Asked about LGIM’s approach to lending into the sector while the potential for a no-deal remains, Steve Bolton, investment manager of corporate private credit at LGIM, said: “We’re very alive to those risks and we do look at, for every opportunity, how certain scenarios may play out and how that may impact an issuer, but I think housing is probably one of the more insulated sectors, compared to say manufacturing or some other sectors that are much more export focused.”

He added: “The risk to housing associations of a no-deal Brexit, I would say, is really around those organisations that are much more exposed to the broader housing market. Newport is not particularly exposed to house prices, given that they are a very straightforward organisation, and while they do develop, the development programme is very social and affordable-focused”.

Newport will use the new funding package to increase its affordable housing delivery to 250 homes per year.

The coupon for L&G’s £95m placement was undisclosed, but Newport City Homes said that the private placement, completed at the end of July, had “one of the lowest all-in interest rates ever achieved in the sector”.

Deferred options

In keeping with several recent deals – as providers take advantage of favourable gilt rates this side of Brexit – the placement also included a deferred element.

Mr Bolton told Social Housing that the “fit-for-purpose structure” saw L&G “provide an element of the overall structure in a one-year delay”.

Mr Bolton said that the investment was “ideally suited for annuity money”, in line with L&G’s requirements.

“Legal & General is uniquely placed to invest pension money into the UK economy, and our investment in Newport City Homes matches our extended liabilities and delivers both real economic growth and social value for the UK.”

He added: “[Newport City Homes is] an important regional provider that plays a major role in fulfilling affordable housing needs in South Wales. This is a significant investment for Legal & General’s private credit team, and further demonstrates both our commitment to housing in the UK and our ongoing support to organisations that make a positive impact on the communities they serve.

Paul Stevens, managing director at Centrus Advisors, said: “[Newport City Homes] achieved a tremendous result which will greatly contribute to its ability to make a step change to the delivery of much-needed housing and support for the people of Newport.”

NatWest Markets acted as the sole agent on the private placement.

Trowers & Hamlins advised on all legal aspects of the project, while Savills provided security valuations.

Social Housing special reports

Each month Social Housing focuses on a specific aspect of housing finance and collates and scrutinises the data for hundreds of housing organisations.

The reports below contain unparalleled commentary and analysis along with detailed sortable and searchable data tables.

Unit costs 2019 Our analysis of data from the English regulator has found that unit costs have risen among all types of housing association, with overall maintenance costs seeing the highest weighted average increase of nearly seven per cent

Impairment 2019 Housing associations’ impairments rise almost 40% in a year, driven by fire safety costs, contractor insolvencies and reduced land values

Global accounts 2018/19 Housing associations’ surplus for the year before tax decreased by five per cent to £3.76bn, driven by a 6.6 per cent drop in England

Affordable rent profile 2018/19 The level of affordable lettings dropped for the third year in a row

Staff pay Data from audited accounts of 206 housing associations shows that average staff pay in 2018/19 was £31,787 – a rise of 3.2 per cent over a 12-month period

Professionals’ league Our exclusive professionals’ league finds that activity continued apace in 2019, when housing associations increasingly looked to private placements

Sales proceeds Despite a 10 per cent rise in housing associations’ income from development sales in the last financial year, sales revenue is likely to remain flat over the coming years as a result of the property market downturn

Capital commitments The total capital commitments of 200 housing associations rose by 15 per cent in the past year, analysis by Social Housing has found

Reliance on sales surplus Social Housing finds that the total sales surplus of 150 English registered providers has dropped by nearly 10 per cent, as a result of lower market sales surplus

Stock dispersal How many council areas does your housing association operate in? How concentrated is its stock?

Accounts digest 2018/19 How does your housing association’s finances compare to others?

Housing Revenue Account part two How do councils compare in their 2018/19 Housing Revenue Account positions? Steve Partridge of Savills takes an in-depth look

Diversi fication of income We look at how housing associations are diversifying their income, and finds that they made 10.3 per cent more revenue from shared ownership and non-social housing activity

Impairment 2017/18 Social Housing takes a close look at the accounts of the 130 largest housing associations, and finds that impairments rose by nearly a third to £78.4m in 2018

Global accounts Social Housing’s analysis of the sector’s global accounts finds that housing associations’ pre-tax surplus fell last year – driven by drops in England, Scotland and Wales (August 2019)

Affordable rent profile We find that the number of affordable rent lettings recorded last year by housing associations in England has dropped for the second year in a row, suggesting that the sector is shifting away from the tenure

Capital commitments We scrutinise the capital commitments of the 208 largest housing associations in the UK (June 2019)

Housing Revenue Account part one Steve Partridge of Savills takes a look at the financial factors councils should consider in their Housing Revenue Account business planning (May 2019)

Reliance on sales surplus Our analysis reveals that profits form 42 per cent of 150 English housing associations’ total surplus (April 2019)

Sales proceeds We look at housing associations’ build-for-sale income and find a two per cent increase in 2017/18 (March 2019)

Shared ownership sales England, excluding London, has seen a four per cent rise in shared ownership sales – much lower than last year’s 16 per cent increase (February 2019)

Stock dispersal We show that housing associations’ general needs stock is becoming more concentrated within their local authority areas (January 2019)

Click here to find more special reports