thfc the housing finance corporation national housing federation treasury management conference...
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n National Housing Federation Treasury Management Conference
Guaranteed Debt for Affordable Housing
Why, What and How?
Fenella EdgeTreasurer
THFCOctober 2014
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nWhy guarantee? The need for an
off balance sheet solution
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n Housing Guarantee Schemes
• UK-wide policy to– stimulate economic activity– facilitate development of additional housing supply
• £10bn for affordable and private rented sector (PRS)– £3.5bn affordable– £3.5bn PRS– £3.0bn TBD
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Affordable Housing Finance (AHF)
• AHF awarded the Licence to run the AHGS until March 2016
• Subsidiary of THFC• Managed by THFC’s existing team plus
additional resource• Over 70 years combined experience in
social housing lending
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n HA Funding Costs
AHF - UK ‘Full Faith’ Guarantee
Housing Association Bond/PP Funding
Rating: AAA/Aa1 AA-/Aa3 →BBB+/Baa1
Cost of Finance: Gilts + 0.37% Gilts + 1.00-1.50%
Potential saving in today’s money per £10m borrowed:
£1.2mill - £2.1mill
0.00%
1.00%
2.00%
3.00%
HA cost of funds in bond markets since 2007 – spread over Gilts
Guaranteed debt cost of funds – spread over Gilts
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n Affordable Guarantee Scheme - Eligibility
A large variety of schemes…• grant funded schemes in programmes post 2011-15
programme• nil-grant funded schemes• s106 schemes • Local Authority supported
…and an increased window for construction• approval by March 2016, drawdown by Sep 2016• start on site by September 2017• no PC timescale requirement
most schemes starting post application eligible
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What is the Product?
£3.5Bn of Guarantee capacity
£500mill EIB long term debt facility (already allocated)
Long dated fixed rate bond• AAA rated• 2042 maturity• £208million issued
Medium term FRN• AAA rated• Estimated initial
issue £150million
Flexibility to mitigate cost of carry through:• Regular taps• Retained bonds
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n Affordable Guarantee Scheme Security Criteria
• Secured on existing assets• Security portfolio to provide:
• Asset cover – 115% EUV-SH• Net annual income cover – 100%• Min 75% general needs, flexibility in
remaining 25%• 5 yearly revaluation• Withdrawal of security without substitution if EUV
over 150%, otherwise substitution required• No MVT alternative, but most HAs have
properties limited to EUV valuation
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n Affordable Guarantee Scheme – other features
• No corporate covenants• Debt service reserve – 12 months’ of interest• Start on site after date of application and within 12
months of drawdown
Fees• Arrangement fee for bond funded loans - 0.35%• Annual fee – 0.10% indexed• No State Aid Fee
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Affordable Guarantee Scheme – Application Process
• Application form listing schemes to be funded
• Credit due diligence undertaken by AHF and reviewed by DCLG
• Process from start to finish c. 3 months
• Key information requirements include:• Latest Business Plan – including funding being applied for• Financial Forecast Return – matching the Business Plan• AHF Key Financial Data Form• Latest Management Accounts• Business cash generation
• Following credit approval, progress to loan documentation
NB Documentation approved by DCLG and relatively standardised
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What does Success look like?Lending Funding
Approvals to date:• 21 borrowers• Total debt eligibility £900million• Includes Welsh and Scottish
borrowers
EIB long dated debt facility • £500million - signed Dec 2013• Fully allocated• Available to draw to Sept 2015
Drawdowns to date• 13 borrowers• Total drawn debt £257million
Long dated fixed rate bond• £208 million issued May 2014• Tap issues planned for Q4 2014
and Q1 2015• Total in issue by March 2015 –
projected £500million
Pipeline of applications in process• Further 16 borrowers• Total debt eligibility c.£600million
Medium term FRN• Initial issue planned for Q1 2014• Estimated size £150+million
Total estimated guaranteed debt issued and on-lent by March 2016 – projected £2-2.5billion
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Conclusions
• A price proposition: sets a new benchmark for low cost, long term finance
• Flexible:• EIB• FRN• Taps and retained bonds
• Proven, oven ready!• This will be the successful Guarantee programme
Questions?