Swan downgraded to BB- and faces possible £178m impairment

It added: “Our rating on Swan is based on its high sales exposure, our view of serious deficiencies in its management, very weak financial performance and very high debt burden, amid rising spending pressure.”  

Swan’s filing on Friday revealed it currently has £24.3m in cash, which is "sufficient to fund the operation of subsidiaries until early December, subject to agreement of on-lending thresholds with its bank lenders”. 

The association took a £25m secured loan from Orbit, which was increased to £40m in March, the filing said. Swan is now talking to Sanctuary about refinancing that loan and adding to it “if required”.  

The filing said: “Swan Housing Group has encountered significant challenges during the year in its commercial operations, including cost overruns and delays to works leading to slower sales. As a result, the amount of debt in Swan Housing Association has increased, as has the level of on-lending by Swan Housing Association to these subsidiaries.” 

If the impairment figure of £178.4m is confirmed in the final audit, it will be bigger than the entire amount of impairments booked by the UK’s biggest housing associations last year, based on exclusive Social Housing analysis. 

Swan said its management and board are “engaging closely” with the Regulator of Social Housing and its auditors to “keep them appraised of the status of the potential merger discussions with Sanctuary”. 

Sanctuary has a history of rescuing housing associations after it took on Cosmopolitan in 2013, following the latter’s financial issues. 

Swan added: “Swan and Sanctuary are engaging with Swan’s auditors to ensure that the accounts will be signed off if the Sanctuary merger goes ahead.”

S&P said there is a “moderately high likelihood” that Swan would receive “extraordinary support” from the government through the Regulator of Social Housing (RSH).  

“One of the RSH’s key goals is to maintain lender confidence and low funding costs across the sector. Therefore, we believe the RSH is likely to step in to try and prevent a default in the sector,” the report said. 

In a statement on its website Swan said: “The leadership team at Swan is aware that the news in recent days may have been unsettling for customers and stakeholders who are uncertain about the next steps for Swan.  

“We would like to reassure you that Swan is proceeding at pace with its discussions with Sanctuary Housing Association, one of the UK’s largest and strongest operators in our sector, with both parties working towards Swan becoming a subsidiary of Sanctuary on 30 November 2022. 

“In the meanwhile, we will continue to focus on the delivery of services to our customers and stakeholders, while progressing the partnership with Sanctuary. We will provide further updates as soon as we are able to do so.”

An RSH spokesperson said: "We have been working intensively with Swan and Orbit and recognise the hard work that Orbit have done. We are now working closely with Swan and Sanctuary as they take this transaction forward." 

Swan was handed a G3/V3 rating last December as the regulator said there had been a “material deterioration in Swan’s financial position since its last business plan was submitted”.

The landlord was also found to have breached the Home Standard in May this year after around 1,500 overdue fire safety remedial actions were discovered.

Last week it emerged that Swan’s interim group financial director has left after nine months in the role.  

Update: at 5.50pm, 10.10.22

The story was updated to include a comment from the Regulator of Social Housing