Network Homes lands ‘first for sector’ trade loan deal

Network Homes said it may have a large outgoing one day, then a large incoming cashflow the next, such as a large acquisition of land which leads to a large cash outflow, followed by an investment sale of stock generating a large cash receipt later in the same week.

 

Speaking to Social Housing, Anup Dholakia, director of corporate finance at Network Homes, said the facility would work for registered providers (RPs) which had “lumpy” cashflows as a result of large incoming and outgoing funds.

 

He said: “It’s for working capital. The working capital of an RP, developing RPs especially, often involves very lumpy cashflows, by which I mean big site acquisitions and occasionally big receipts coming in.

 

“For Network Homes, we have a cash-holding policy where we are required at any time to hold cash or cash equivalents of £50m.

 

“We have a large cash outflow, followed by, in short succession, a quick large cash inflow, to maintain compliance with that £50m.

 

“This [facility] really does help, rather than having to unnecessarily expend interest costs on a longer draw period on an RCF.

 

“It just marries very well with the peaks and troughs created by such lumpy cashflow and reconciling that to our need to have £50m at a minimum, at any given time."

 

“We don’t want to have £70-80m, because that’s inefficient use of our debt and too much interest cost.

 

“But the trade loan is an uncommitted facility and the interest periods available are shorter than anything I’ve seen before.”

 

Mr Dholakia said there could be similar products out there, with providers able to agree interest periods for a certain number of days, but that he had not heard of an agreement as short as 14 days.

 

He said: “Typically on some of the RCFs, it is possible by agreement, and with negotiation with your relationship person at a bank for example, to agree a shorter period, but this [deal is] manifestly shorter than what we typically see.

 

“With existing loan products involving credit facilities, it’s possible by agreement with your [bank] to amend it to say, ‘we don’t want to do an interest period for a month, we want to do it for X number of days’.

 

“But that is almost by exception rather than an inherent feature of the product.

 

“And one month is typically the kind of short end of the RCF, but this is completely different in that respect.”

 

Barclays already has a similar product which it has offered to local authorities in the past, with the underlying solution exactly the same in terms of a minimum 14 days’ loan tenor.

However, Mr Dholakia believes the “idiosyncrasies” of existing agreements and security in the social housing sector mean that there will be tailoring required for housing associations.

 

“It does require a bit of finessing to become kind of compliant and set alongside our other facilities and so forth,” said Mr Dholakia.

 

“And we’ve done a lot of that hard work. Hopefully, Barclays won’t have to go through that kind of painstaking exercise again with other RP clients.

 

He added: “We’ve got a pretty good relationship with Barclays to be able to have these kinds of open discussions, expansive discussions beyond the sector, and that’s how it came about.”

Network Homes manages around 20,000 units across the South of England, and has development ambitions of starting on 1,000 affordable homes by 2023, a target set in 2021.

 

However, Mr Dholakia said the deal was not a case of “the tail wagging the dog” on its development pipeline.

 

He said: “Our development ambitions are separate to this, this is just kind of optimisation of how we manage our treasury activities.

 

“I don’t think it’s going to be transcendent, but I think it’s going to be an improvement.”

 

The director added that he believed risk on the deal was low and had already been factored into the provider’s business plan, with sufficient facilities in place even without the loan.

 

“The financial risk is really low. We don’t kind of consider it as part of our kind of our ‘normal facilities’, because it is an uncommitted facility.”

 

Commenting on the deal, Andy Taylor, public sector social housing relationship director at Barclays, said: “We’re delighted to extend our relationship with Network by providing this innovative, unsecured working capital solution to smooth cashflow volatility, enhance liquidity management and generate more optimal borrowing cost efficiencies.”