Swan Housing prepares partnership as regulator downgrades it to non-compliant
Swan Housing Association has announced that it will form a partnership with Orbit Group, on the same day it had its viability and governance grades downgraded by the Regulator of Social Housing (RSH).
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Swan, which provides general needs and supported housing, has been found non-compliant by the regulator. Its governance and viability grades were downgraded from G2/V2 to G3/V3.
The RSH said this was because there had “been a material deterioration in Swan’s financial position since its last business plan was submitted”.
It follows the announcement in November this year that its gradings were under review.
Increasing development costs and delayed sales have put pressure on Swan’s financial covenants. This has meant that its ability to maintain covenant compliance is “reliant on the continued co-operation and agreement of third parties”, the regulatory judgement today (10 December) said.
It added that Swan’s reliance on third parties to resolve the situation represented a “fundamental loss of control on the part of the board and executive”.
The regulator added that ineffective management of its development programme and its development subsidiary had contributed to a “material deterioration” in Swan’s financial position since its last business plan was submitted to the regulator. This included “the identification of a significant adverse variance in its future development costs”.
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The RSH said: “Information presented to the board and regulator has been inconsistent, and together with the failure to monitor covenant compliance effectively, has led to a loss of regulatory confidence in its accuracy and reliability.
“The regulator is therefore not assured of the robustness and quality of the data being used by Swan to inform its financial planning and reporting.”
Swan owns and manages approximately 11,600 homes in Essex and east London, with plans to develop a further 2,200 new homes over the next nine years.
In response to the viability and governance downgrade, Swan said in a statement: “We accept the regulator’s findings.
“We have been working proactively with the regulator since it issued a ‘grading under review’ notice and have in progress a series of actions to deal with the immediate challenges seen within our business plan.”
The regulator said that Swan was engaging with it and that the provider had commissioned external advisors to help it to do so.
On the same day of the regulator’s judgement, Swan and Orbit announced that they would form a 60,000-home partnership.
A statement released by Orbit said that it acknowledged the matters raised in the regulatory judgement and that it will work with Swan on the findings.
Social Housing asked the regulator whether the partnership between Swan and Orbit was pre-planned or is a regulator-backed intervention.
A spokesperson for the RSH said: “We do not comment on individual cases, but as our regulatory judgement makes clear we are engaging intensively with Swan on its chosen strategy on seeking a partnership with Orbit.”
Mark Hoyland, chief executive of Orbit, said: “We believe Orbit and Swan to be an excellent, strategic match. Both organisations share common values and principles, have complementary geographies and are passionate about making a difference to people’s lives and the communities in which we work.
“In unlocking our shared potential, we can use our collective strength to do more to tackle the housing crisis and create thriving places to live.”
It is expected that the transaction will be completed in late 2022.
Pat Billingham, chair of Swan, said: “We are pleased to be working closely with Orbit. We remain absolutely committed to the communities we serve and are confident this partnership will bring many positive benefits to Swan customers and our people.
“We have been working proactively with the regulator to deal with the immediate challenges within our business plan and working with Orbit will strengthen our recovery.”
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