09/03/2021
Welcome to our first edition of Housing Finance Snapshot - a regular newsletter providing banking and finance updates and opinion for those based within the affordable housing and local government sectors.
LIBOR: the final countdown
With the FCA announcement on Friday 5th March confirming the cessation of most LIBOR settings on 31 December 2021, it is becoming increasingly important to engage with the transition process and your lenders. In our recent Essential Housing Update webinar, we looked at the timetable for the year ahead and considered the key issues facing borrowers when transitioning existing LIBOR loans across to SONIA.
Important milestones now fast approaching (as set out in the Working Group on Sterling Risk-Free Reference Rates 2021 Roadmap) include:
- By end of Q1 2021, cease initiation of new LIBOR-linked loans, bonds, securitisations and linear derivatives (except for risk management of existing positions) that expire after the end of 2021
- By end of Q1 2021, complete identification of all legacy LIBOR contracts expiring after end 2021 that can be actively converted, and progress active conversion where viable through to completion by end-Q3 2021.
Key considerations for borrowers when transitioning existing LIBOR loans to SONIA include conventions to be used in documentation for compounding SONIA in arrears and agreeing with lenders the approach to calculating credit adjustment spreads (to deal with the difference between LIBOR and SONIA). For any borrowers with hedging agreements in place it is important to look at those and engage with lenders and hedging counterparties at the same time to try and ensure consistency across agreements.
An overall key consideration is timing - currently we are seeing lenders adopt a range of approaches to the transition including hard wired future switch mechanisms or transitioning now for those that are ready. Borrowers should seek to agree an appropriate timetable that works for their business (and takes account of operational readiness for the transition).
Watch this space for further regular updates from us, and in the meantime here is a link to our recent webinar.
ESG: a new funding prospect
Being able to demonstrate achievement of Environmental, Social, and Governance (ESG) objectives may attract a wider variety of investors in addition to the pricing benefits it may have. An increasing number of investment funds are now focusing on ESG in particular since the revised UK Stewardship Code was launched in October 2019 that expects asset owners, such as pension funds and insurance companies to take ESG factors into account when allocating, managing and overseeing capital investment. RPs and the purposes for which they operate, are clearly well placed to attract these investors.
Rosanagh Herries discusses the benefits of ESG funding and issues housing associations should consider before approaching ESG funders in her Soundbite video "Environmental, Social and Governance – a new funding prospect"
Private Placements: factors to consider
As RP’s finalise their business plans over the first few months of this year, we are seeing lots of interest in private placements. We have set out eight factors to consider when considering a private placement. Please contact Louise Leaver if you would like any more information or if you would like some free training for your board on the private placement process.
Local Authority: CIPFA Consultation on Prudential Code
CIPFA has issued a consultation on its proposals to strengthen The Prudential Code for Capital Finance in Local Authorities (2017). This follows the completion of HMTs consultation on Public Works Loan Board (PWLB) borrowing results, which were published at the end of 2020 and which limit access to the PWLB for local authorities found to have engaged in controversial debt-for-yield activities. Bevan Brittan reported on the PWLB reform last month: Planning on Borrowing from PWLB in 2021? What do the changes in borrowing rules mean for you?
The proposed shake-up of the Prudential Code follows the lead of PWLB reform by clarifying the misinterpretation of the existing rules that has left some authorities over extended and clarifying restrictions on borrowing to fund purchases solely to make an investment return: “debt-for-yield”. Local authorities should have regard to the Prudential Code in formulating their capital investment plans and therefore the updates might help to clarify some of the less clear elements of the changes to the PWLB borrowing rules.
Responses to the consultation are sought by 12 April 2021.
Consumer Credit: SMCR
For any RPs that carry out regulated consumer credit activities, there is an upcoming deadline for solo regulated firms to complete certain elements of the Senior Managers and Certification Regime (SMCR). The deadline has been extended from 9 December 2020 to 31 March 2021. The requirements are (i) training of staff on relevant Conduct Rules, (ii) assessment of certified persons as fit and proper and (iii) providing information of directory persons to the FCA.
Practical steps to ensure this deadline will be met could include
- ensuring each management function has been allocated to a senior manager
- identifying the certified function holders and completing the necessary certifications
- considering the content and timing of training of staff
- reviewing internal policies, updating employment contracts and staff handbooks.
For more details on the requirements to be met by 31 March 2021 and practical steps to be taken, Virginia Cooper, head of our London office, has given an in-depth guide in our Essential Housing Update.
Building Safety Funding
The announcement of an extra £3.5 billion in funding to pay for the replacement of unsafe cladding in high-rise building has been welcomed by the housing sector, but still leaves many questions unanswered and much remedial work unfunded.
In addition, RPs are facing additional requirements from some lenders to provide EWS1 forms not only in relation to new properties being charged but in relation to the whole portfolio, particularly when looking at restatements. The Royal Institution of Chartered Surveyors ran a consultation in January to determine criteria for when an EWS1 form should not be required and we are expecting guidance to be released shortly which should assist with clarifying the situation for all concerned.
2020 Deal highlights
- Pioneer – Acting for Pioneer Housing and Communities in a £30m private placement facility from Scottish Widows.
- M&G Rhondda – Acting for M&G Investment Management on behalf of investors in a £30m private placement issued by Rhondda Housing Group and an associated refinance of historic debt.
- Selwood – Acting for Selwood Housing as borrower in an amendment and restatement of their existing facility agreement with Nationwide.
- Croydon Churches – Acting for Croydon Churches Housing Association on the refinancing and restatement of three facilities and a new loan with THFC
- Together Lovell JV – Acting for Together Commercial in relation to the funding of several sites through its JV with Lovell Partnership
- London Borough of Brent – advising Brent on its innovative £80m debut private placement
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