Swan and Sanctuary merger yet to complete as ‘third-party’ discussions continue

News08 Dec 2022Sarah Williams

The merger of financially troubled housing association Swan with Sanctuary did not complete by the earmarked date of 30 November, as it remains subject to “third-party consents”, market updates revealed last week.

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The merger of financially troubled Swan with Sanctuary is yet to complete, as ‘third-party’ talks continue #SocialHousingFinance #UKhousing

The would-be partners have entered a period of “managed service agreement”, the smaller association’s public debt issuer, Swan Capital Markets, told markets on the date it had been due to merge.

It added that a further update on the timing of the potential business combination would be provided “in due course”.

In a separate market announcement on 1 December, the trustee on Swan’s £250m bond said that the merger “did not complete by 30 November 2022 as originally expected”, but confirmed partnership discussions were continuing.

M&G Security Trustee added that it was not aware of “adverse developments” that would cause it to reassess its previously announced intention not to serve notices against Swan for breaching covenants on its bond.

The discretionary forbearance on the part of M&G is intended to enable “sufficient time for the merger to take effect and the breaches to be cured”.

Among the breaches, Swan is yet to publish its audited accounts, which the 11,500-home landlord previously told the markets were delayed because its auditor had insufficient assurance on the “level of impairment included in the 2021/22 accounts of £178.4m in respect of certain development schemes”.

M&G Security Trustee said in its 1 December update that although the merger had been approved by the boards of both associations, as announced on 24 November, it remained “subject to third-party consents”.

Swan’s credit rating is currently being monitored by S&P, which has downgraded the association to BB-, a junk-bond rating. In its downgrade report on 8 October, the rating agency referred to Swan’s “much-weakened financial standing”, and its view that Swan’s access to the market was currently “limited”.

S&P added: “In our view, there is a high risk that if Swan does not manage to secure external support, its ability to service its financial obligations will be impaired. Balancing this risk is the likelihood of a timely completion of the partnership with Sanctuary Housing, which could improve Swan’s financial standing.”

In an update on 30 November, Swan Housing Capital told the markets that the business combination with Sanctuary was “subject to obtaining appropriate consents and satisfactorily concluding commercial discussions with third parties”.

Further details of the third parties and an update on the planned completion date were not available from Sanctuary or Swan when requested by Social Housing.

The Swan update added: “A further update will be provided on the timing of the potential business combination in due course and, in the interim, both organisations will now enter into a managed service agreement.”

Swan is currently graded non-compliant by the English regulator. The Regulator of Social Housing downgraded it from from G2/V2 to G3/V3 in December 2021, citing a “material deterioration in Swan’s financial position since its last business plan was submitted”.