Social Landlord in Financial Difficulty

Yet another social landlord has had to ask for help after getting into trouble with it’s loans.

Cosmopolitan Housing Group, who are the largest social landlord to get in to difficulties so far, own nearly 14,000 properties in the north-west of England.  With over £110 million of government funding, sources have revealed that it may potentially breach its financial covenants.

Merger talks between Cosmopolitan Housing Group and one of the country’s largest social landlords, Riverside Group are under way.  The housing group said: “The Board of Cosmopolitan has approached Riverside to see if they could help them improve delivery to the communities they serve, leveraging Riverside’s financial strength and experience in managing group structures.”

Cosmopolitan merged with the Chester & District Housing Trust last year, in an effort to firm up it’s financial position.  Whilst they haven’t published any accounts as yet, the Financial Times has conducted research that shows that collectively they owe banks nearly £200 million and have £69 million capital commitments. Their combined debt-to-assets gearing ratio was 93% according to the FT’s calculations, where the sector average is 78%.

The Homes & Communities Agency, who regulate the industry, has expressed concerns about several other medium-sized landlords with significant debts which it fears have over-stretched themselves.

The government’s affordable housing programme, which requires housing associations to make greater use of their own financial resources to fund the development of new homes is now being brought in to question.

Ministers believe that housing associations can provide a large portion of Britain’s new homes in the coming months and have promised to underwrite social housing bonds to encourage this in August.

The problems at Cosmopolitan may prompt second thoughts among bond investors who have been inundating the social housing sector in recent months, compensating for a withdrawal of bank funding.  Over £2 billion has been raised in bond insurance so far this year.  Historically, this sector has been highly regarded by investors, with no one ever losing money to date.  Any social landlord who has been in financial difficulty has simply been taken over by another organisation and their assets and loans transferred across.

Under influence by the government, stronger associations have lent money to the more cash-strapped, which has sometimes resulted in their takeover.

Cosmopolitan recently cut its construction programme by a third and made 22 development staff redundant. Chief executive John Denny said: “Continuing to develop new housing will need the shelter of a bigger group.”

Riverside chief executive Carol Matthews said: “We have just started the due diligence, we are not in a position to make a full assessment”.  She also commented that it is too early to say whether Cosmopolitan’s remaining development programme would continue if it joins her organisation.

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