Bumper loans package with six banks gives London landlord £215m of new cash
Circle 33 has signed one of the biggest refinancing and new borrowing deals ever agreed by a registered social landlord.

The £420m deal is set to save £200,000 a year in interest costs. It brought down the average interest rate on the association's loans from around 7% to 5.85%.

The deal, with six banks, includes:

  • £50m of new money from Lloyds TSB
  • £40m of new money from Cheshire Building Society
  • £25m of new money and £20m of existing money from Royal Bank of Scotland
  • £100m of new money and £85m of existing money from Nationwide
  • £30m of existing money from Barclays
  • £70m of existing money from Abbey.

The deal will give the London-based association £215m of new money and allows it to refinance old loans – some with the lenders in the syndicate and some with other lenders – in order to bring down costs.

To manage exposure to interest rates, the association uses a mix of fixed-rate loans – included in this latest funding – and about £160m of derivatives, which fix interest.

Among the latter is a £20m interest-rate hedge signed with Barclays two weeks ago.

Circle 33 has also set up a security trust to reduce the costs of legal searches on homes being used as security for loans.

Usually, searches have to be done on properties each time they are used for a loan with another lender. But this will only have to be done once for homes in Circle 33's trust.

It has also revalued its properties using the market value rather than rental cashflow.

Group treasury manager Nathan Dunton said: "We can use less of our security to secure loans by moving to the open market value. Property values based on rental cashflow can be almost a quarter of the open-market value."

Sunderland Housing Group boosted the value of its homes by £100m with similar measures when it signed a £300m bank deal last year (HT 3 October 2003, page 17).

Paul French, a senior manager at Lloyds TSB, said: "Circle 33's treasury management is sophisticated; we are happy to support that."

The deal follows a wave of refinancings in the sector (HT 26 March, page 15). The next few months are expected to see more.