Welcome to our February edition of Housing Finance Snapshot - a newsletter providing finance and property security updates and opinion for those based within the affordable housing and local government sectors.
Asset & Liability Registers – Best practice: data and processes
We have recently been engaging with stakeholders in the sector regarding the content and processes of the ongoing management of their Asset & Liability Registers (ALRs). Given the regulatory emphasis on good data and stress testing in an uncertain economy, it is an optimum time to review your ALR data categories and processes in order to facilitate the provision of good security data to feed into your funding projects. Whilst there is no prescriptive form for the register and there are a mix of different approaches in the market, it is possible to identify consistent themes from the background to the requirement, the applicable regulatory standards and our experience within the sector. The information needs to be user-friendly, current and accurate and therefore underpinned by an ongoing management and monitoring strategy. Flexibility is key and it may be necessary to widen the scope of your data categories to take account of fluctuating market conditions to include, for example, MMC data and building safety information. It is worth noting that there is a natural synergy of approach between the ongoing management and monitoring of the security and finance data in your ALR and pre-charging due diligence as part of an ongoing Optimal (or ‘rolling’ ) Charging Strategy. Both strategies have the same aim – understanding your assets and security position, their value and whether they can be utilised as good security quickly and easily. This also facilitates swift decision making and risk management.
From a security perspective, ALRs have moved away from rudimentary spreadsheets with a list of title numbers and are now much more complex records which interlink to a number of work streams across the business. Advanced software is usually used for this purpose. Expectations in terms of asset data include:
- UPRN numbers
- title information
- tenancy and SO details
- charges and allocations
- valuation basis
- stock condition and
- operational information.
Security liabilities (planning obligations, title restrictions/consents, charitable restrictions, management and grant agreements) can be more challenging to determine, and a vital aspect to the register is that liabilities must be included in widest context. This may require a degree of legal due diligence to support the provision of correct information into your ALR.
Turning to financial liabilities, a thorough understanding of your covenants and commitments in your loan portfolios is critical and our Banking team frequently assist Registered Providers with a ‘Loan Matrix’ to consolidate this information. This can be very useful to fully understand where liabilities exist, especially within group structures and merged organisations with legacy loans.
In summary, the quality of your security and financial information in your ALR can have a significant positive impact on future funding with the following outcomes:
- potentially an enhanced credit rating
- speeding up of the funding securitisation process so that liquidity can be maintained and producing transactional efficiencies in terms of time and cost
- achieving a cohesive approach to short, medium and long term investment and re-investment
- ensuring the board understands the risk exposure of the business as a whole, including capacity in terms of liquidity to maintain its commitments over time, and that it understands the fundamental link between the register and overall stress testing
- evidence of assurance to stakeholders and access to due diligence on any property at any point in time
- speeding up any stock rationalisation merger process, providing assurance to merger partners about the robustness of the business
- improving risk management and mitigation
Modern Methods of Construction – A new technical standard
The British Standards Institution (BSI) are to publish a new technical standard covering the construction of MMC units, as well as setting out quality assurance, compliance and best practice standards for the sector. This will be a universally recognised standard to assist with access to increased choice of warranties, assurances and, whilst the fundamental aim is to enhance the delivery of high quality energy efficient homes at scale, the move will also enhance accessibility to funding options as there is a move towards standardisation of requirements. The standard will not be legally binding but will be helpful guidance for funders and borrowers and will develop an understanding of the technical requirements for constructing MMC units.
The initial consultation in respect of the new standard, is currently at working group stage (Jan 2023) with a formal consultation planned later in 2023. The announcement comes in the same week that an alliance of 23 Registered Providers has been launched to escalate MMC delivery with a £2billion national construction framework.
If you would like to discuss the requirements for funding MMC units, please contact Jessica Church.
New investor guidelines
The Investment Association (IA) has issued new guidelines for Registered Providers (RPs) in terms of communication and performance data that investors are increasingly requesting from RPs. In general, investors want more frequent, transparent and visible communication on their environmental and sustainability performance and governance data. In practice this means RPs producing data on how they are currently performing and being governed together with their short term, medium and long term plans to improve and move towards long term goals e.g. Net Zero 2050. The IA understands the complicated and competing calls on the personnel and finance resources of RPs, especially in the current economic environment, and in a webinar hosted by the IA on 25 January, the panellists were keen to stress that what their clients want to see is a ‘cohesive direction of travel’ for RPs. Investors’ main focus isn’t on where an RP is starting from, they really want evidence that an RP knows exactly where they’re starting from, and evidence that they are traveling (one step at a time if need be) to where that RP wants to be in relation to environmental, sustainability and governance performance.
The IA guidelines contain practical tips and best practice recommendations in relation to how and when to make disclosures and how to report on performance and sustainability metrics. RPs need to ensure that information is easily accessible and that they are providing regular updates to investors in line with legal and regulatory requirements relating to insider information.
If you would like to discuss the legal requirements relating to investor disclosure and inside information, please contact Louise Leaver.
HMLR Practice Guide: Electronic Signatures
The Land Registry’s guide on accepted forms of electronic signature has seen several updates over the last few months, the latest on 30 January 2023.
The major implication for those submitting documents to the Land Registry is the acceptance of certain forms of electronic signature allowing for greater flexibility in the execution process. The changes mean that those associations whose constitution permits digital execution can make better use of applications such as Docusign which is already heavily used by banks. Such a step forward will enable associations to complete paperless transactions swiftly and securely but the detail of the HMLR conditions should be closely followed to avoid issues registering time sensitive documentation such as legal charges.
Shared Ownership Rent Cap
We have been assisting a number of clients with their considerations in relation to the implementation, on a voluntary basis, of a rent cap of 7% in relation to their shared ownership properties. There are a number of legal considerations including in relation to property law, regulatory and charity law as well as the interaction with funding arrangements. Clients are advised to carry out a review of their loan and security agreements to identify any consents which may be required as a result of a voluntary rent cap, including potentially financial support restrictions or prohibitions on amending or waiving rights under the shared ownership leases.
If you would like to discuss the consents required in more detail, please contact Louise Leaver.
Key Deals of 2022
In 2022 the Social Housing Finance Team has advised on a range of transactions with a combined value over £1.5 billion. Some highlights from the last year include:
- We kicked 2022 off with the January completion of the second phase of Havebury Partnerships £150m private placement provided by PIC and Macquarie and a new £60m RCF from Lloyds Bank.
- Completion of a ground breaking new £12m trade loan agreement in May for Network Homes with Barclays Corporate Bank
- In June we advised Silva Housing on the completion of a new £28m loan facility with ARA Venn as part of the Government’s new £3 billion Affordable Homes Guarantee Scheme.
- Advised ForHousing Limited on the completion and first drawing in July from a new £60m facility with bond aggregator The Housing Finance Corporation (THFC) bLEND.
- Completion of a transaction for Together Housing Group in July for the inclusion of a further development site into its existing partnership with Vistry for the delivery of 165 new homes in Blackburn.
- In November our securities team finalised their work advising Saxon Weald on its £70m sustainability-linked private placement with LGIM Real Assets and its security trustee M&G.
Bevan Brittan attending the NHF Finance conference – we hope to see you there!
Partner Jessica Church will be speaking on Unlocking the value of MMC to discuss specific charging considerations.
Our Housing Finance team will also be attending the conference on 15 and 16 March. If you would like to arrange a chat to find out how we can help you or discuss anything mentioned above, please contact Jessica Church or Louise Leaver.
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