Welcome to our January edition of Housing Finance Snapshot - a newsletter providing banking and finance updates and opinion for those based within the affordable housing and local government sectors.
LIBOR Transition and use of Synthetic LIBOR
The deadline for all LIBOR transitions (31 December 2021) has now passed, however to avoid ending up in a precarious position, the FCA confirmed in November 2021 that certain LIBOR settings will continue to be published for the duration of 2022 under a “synthetic” methodology. Accordingly, the Critical Benchmarks (References and Administrators’ Liability) Act (the Act) received Royal Assent on 15 December 2021, amending the UK Benchmarks Regulation (the UK BMR) to provide for the automatic transition of LIBOR-referencing contracts to synthetic LIBOR after the end of 2021.
The changes introduced by the Act ensure that all English law contracts (except for cleared derivatives) that still reference one-month, three-month or six-month GBP or JPY LIBOR after 31 December 2021 will automatically transition to the relevant synthetic rate where a transition to an alternative rate has not been made by the deadline. The Act also means that contracting parties cannot argue that use of synthetic LIBOR constitutes a breach of contract, material change or frustration. It is important to note that these synthetic rates will not be available for use in any new contracts.
Update on Mandatory Climate-Related Reporting Requirements
In October 2021 the Department for Business, Energy & Industrial Strategy responded to the consultation on mandatory climate-related financial disclosures by public companies, large private companies and LLPs. From 6 April 2022, over 1,300 of the UK's largest companies and financial institutions will be legally required to disclose climate-related risks and opportunities in line with the TFCD recommendations. The UK will be the first G20 country to introduce these requirements into law.
The legislation will apply to listed companies and large private companies and LLPs (essentially those with more than 500 employees and more than £500m turnover).
Changes will be introduced via statutory instrument with one version for companies and another for LLPs. Subject to Parliamentary approval, regulations will come into force on 6 April 2022 and apply to financial years commencing on or after that date. The reporting requirements are to be introduced in stages, with all relevant organisations being required to report by 2025.
The legislation only applies to listed and large private companies at present, but it is a strong indicator of what may be on the horizon and it is likely that similar requirements will be rolled-out for all organisations in the future.
Social Housing Decarbonisation Fund
In October 2021, the Government announced as part of its Heat and Buildings Strategy that it has allocated £800m to the Social Housing Decarbonisation Fund (SHDF) as part of a multi-billion pound, three-year investment in the decarbonisation of buildings. These funds can be utilised by housing associations to carry out energy efficiency upgrades in their tenants’ homes.
Applications for Wave 1 of the SHDF are now closed (comprising £160m), and funding for Wave 2 (comprising £800m) is to be allocated in 2022-23 and 2024-25. It is likely that, alongside these grants, private finance such as sustainability-linked loans will also be required for housing associations to meet their decarbonisation targets.
Bevan Brittan has provided advice to clients in relation to their applications for Wave 1 – please get in touch with Nathan Bradberry or Chris Harper if you would like a discussion in advance of Wave 2.
£50 billion funding injection is required for the sector over the next 5 years
Credit rating agencies for the sector have forecast a need to secure an additional £50 billion in funding over the next 5 years to tackle the cost of decarbonisation and fire safety costs. Additional costs pressures are on the horizon as electricity safety comes into focus and the sector will be taking a fresh look at quality as the Decent Homes Standard is re-launched. The revised forecast increases the amount of debt drawn down to be near £14 billion by 2026, from £85 billion in 2021. The impact will be felt sharply by the G15 London housing associations with a high proportion of high rises in their ownership. On a more positive note, the overall impact of Covid is predicted to be less significant, given high levels of liquidity and consistent cash flow. Equally, the negative consequences of Brexit are anticipated to ease as new international trade agreements are entered into, which should alleviate the problems around resources, labour and supply chain. Forecasters also comment on the challenges surrounding the securitisation of MMC units but expect these issues to be short term as this area of the sector develops and associated funding requirements start to coalesce.
Louise Leaver, Jessica Church and Rosanagh Herries advised The Havebury Housing Partnership on the finance and property sides as issuer in a £150m secured private placement with a mixture of US and UK investors. Signing and completion were in two stages and the funding was structured so as to have a series of closings. As well as this, Louise and Rosanagh acted on the restatement of a £60m revolving credit facility with Lloyds Bank alongside the private placement. The deal will enable Havebury to expand its provision of affordable housing and upgrade the energy efficiency of its homes.
Senior Independent Network
If your Senior Independent Director is looking to expand their peer network, our next SID Network event will be taking place on 31 January.
Legal compliance: from implementation to assurance
Take a moment to watch Sarah Greenhalgh and Sarah Pearson - Head of Legal and Compliance at Abri in this short video, as they identify top tips for meeting the Governance and Financial Viability Standard which requires all Registered Providers to ensure that they comply with ‘all relevant law’.
Committee Chairs Network
If you have a colleague who is a Chair for one of your committees and who would like to expand their network, our next virtual event will be held on 9 February. Our guest speaker will be Rina Goldenberg Lynch from Voice at the Table a diversity and inclusion consultancy, who focus on culture change, particularly in the context of Inclusion. Rina regularly works with executive teams and boards to help them understand and fulfil their responsibilities in setting the right tone for organisational culture.
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