A new type of loan arrangement, established through group funds,will offer an alternative to RSL mergers, according to finance experts.
A treasury vehicle called the Groupfund will provide capital finance for RSL group members.

Five housing associations currently operate under this funding arrangement, and this month a £227m group funding was arranged with Barclays, Halifax and Abbey National by Network Housing Group (Housing Today, 2 May).

Dennis Watson, Barclays' deputy head of social housing, told Housing Today that vehicles like the Groupfund were an ideal alternative to mergers. It was popular in the market and attracting other lenders.

"More and more group structures want to retain their own identity, rather than having all activities under one large RSL," he explained.

"We are now seeing group structures specialising in specific areas – key workers, regeneration or general needs."

Under a special loan note agreement, the Groupfund is able to access unsecured cash borrowing to provide credit enhancement for group members during periods of cashflow uncertainties.

This provides security to lenders by spreading risks across several group members. And security is especially important for newer members whose initial cashflows may be stretched.

Watson said: "The Groupfund provides an intra-group support mechanism where a loan note structure provides lenders with cover in case one member defaults.

"Larger RSLs can support smaller group members. And we ask group members to stump up six months' interest on their business activities in times of cashflow problems among newer members."

He added: "Subsidiary groups have different requirements and work in different structures. The Groupfund is a very cost-effective way of raising finance."

Hacas Chapman Hendy finance director Derek Joseph said that the vehicle worked well for RSLs interested in estate-based transfers because they could turn to the larger RSLs for financial support while retaining their own identity.

The group fund structure will facilitate three new initiatives for Network Housing Group: Riversmead Housing Association will take on 3,250 homes from East Hertfordshire council; Willow Housing Association will receive 400 sheltered and care units from Brent council; and BME housing co-op Mitali will receive additional funding through Network member Solon Housing Association.

Source

Housing Today