One Housing welcomes new lender and slice of project finance in £235m funding

The new liquidity is partly to support the development of 5,000 homes over the next 10 years, along with creating a liquidity buffer against potential adverse market movements, creating in excess of five years’ headroom based on the current committed profile.

Paul Rickard, chief financial officer at OHG, said it is “sufficient liquidity to weather severe black swan events”.

OHG has taken three revolving credit facilities (RCFs) from new lender Sumitomo Mitsui Banking Corporation (SMBC), fellow Japanese bank Mitsubishi UFJ Financial Group (MUFG) and Yorkshire Building Society providing a 10-year RCF.

SMBC provided a five-year facility with standard loan documentation, marking its first loan to a UK housing association after the bank entered the market with a £200m private placement for Sanctuary Group.

Mr Rickard said: “It starts to build a relationship to their wider banking activities, with the potential to increase the level of borrowing further in the future.”

SMBC has since followed up the OHG deal with a £75m RCF for Sovereign.

One Housing also took £25m of project finance, including £17.9m from Close Brothers, £5.6m from Royal Bank of Scotland and £2.7m from the Greater London Authority.

The association has taken over £70m of funding from Close Brothers since 2008, at levels between £5m to £20m, and repaid all those historic facilities.

The new £17.9m deal is a single, project-specific loan with quick, straightforward documentation. It will support a real estate investment trust conversion and small element of new build at the Acton Town Hall site.

“We could [fund it through other loans], but this increases our capacity and reduces our risk. We are putting in around 40 per cent of the total cost with 60 per cent direct development finance into an SPV, which increases our capacity to invest, while helping to reduce the risk to the main parent.”

OHG does this via an inter-company equity investment from the parent, sourced from its reserves.

The same approach has been done on some of its other private sale special purpose vehicles (SPVs).

Development finance loans do tend to be more expensive than other housing association debt.

The group is exploring consolidating some of its SPVs into an ‘InvestCo’ model, which helps consolidate development activities while creating a further financial buffer between private sales activity and the parent.

As part of the £235m package, there have also been some increases and extensions to existing facilities with Allied Irish Bank and Royal Bank of Scotland.

OHG was supported in the new funding exercise by Centrus Advisors, which managed the process from information memorandum issuance to assisting lenders in obtaining credit approval.

Sanjay Narbheram, director of housing finance at MUFG described it as “a pivotal moment for One Housing Group, and being able to provide financing at a time of strategic growth is clearly in line with MUFG’s objective to support the UK social housing sector with building new, affordable homes”.

OHG had around £850m of drawn debt at March 2018, and cancellable standalone floating to fixed interest rate swaps with a nominal value of £291m, which were £37m out of the money at March 2018.

Mr Rickard said there is sufficient security charged to support a one per cent parallel shift in the yield curve.

Story updated on 5/11/18 to include further detail on project finance breakdown.