The current pandemic has demonstrated not only the volatility of the financial markets but also the resilience and attractiveness of social housing as a safe haven for investors.
Based on our experience, here are ten points to consider and focus on. These elements will help put you in the best position to take advantage of the current heightened interest in the sector and historically low rates:
- Purpose – What do you need the funding for and how quickly do you need it?
Determine what type of funding you need early in the process, as traditional loans, private placements and bonds all require different documentation approaches and preparation. Some can be implemented more quickly than others and they each tend to have a different level of funder consent required for certain activity going forwards.
- Security – The one constant, unless you are interested in unsecured funding, is property security.
Invest time in identifying your unencumbered or over-secured stock, and carry out some preliminary due diligence to ensure they are “charging-ready” as much as possible, particularly if you are considering capital markets funding.
- Information – Being able to tell your story is important to attract investors and demonstrate strong management.
Regulatory requirements apply to public bonds, but any institutional investor will require similar levels of assurance and it is good practice to have a separate investor section on your website with clear and transparent information.
- Governance – Streamlined governance arrangements allow for speed and flexibility, particularly at the current time.
Ensure your borrowing limits are sufficient and know whether you can enter into Swaps, particularly as part of a capital markets strategy. Do you have a committee structure, who are your authorised signatories and do they have the ability to execute remotely?
- Refinancing risk – Know your existing documents.
Can you release excess security and if so what are the minimum covenant requirements and what are the breakage costs? Refinancing tends to take longer and requires early engagement with the lender being refinanced to understand their requirements.
- LIBOR – Cessation of LIBOR is still due by the end of next year.
We are seeing banks taking different approaches to deal with this and issue new loans or transfer existing ones to SONIA. Do you know what the position on this is in your existing loans and have you taken advice on how to approach this in any new funding arrangements?
- Set a timetable – Speed is of the essence for private placements and bonds but even for bank lending it’s important to have momentum and get the transaction done efficiently to reduce costs. Involve your treasury and legal advisors at an early stage to help set a realistic timetable.
- Negotiations – Be realistic but know what your red-lines and what provisions are critical versus 'nice to have'.
Do you need to be able to on-lend or set-up a subsidiary or invest in a joint venture? Involve your legal advisors and raise important requirements as early as possible in the process, but be aware of market expectations and the potential impact on pricing.
- Security trust deed – Most lenders and institutional investors require a security trust deed.
If you already have a security trust deed, check that it allows for new beneficiaries without consent and for bond and note issuance. If you don’t have one, start the process early although it is relatively straightforward to set up the documentation.
- ESG – Increasingly funders need to be able to demonstrate social value.
Do you have the metrics to measure your sustainability or environmental impact? Being able to demonstrate this may attract a wider pool of investors.