As recently featured in 24 Housing, Winckworth Sherwood advises Sovereign Housing Association on £250m unsecured club deal with five lenders. Winckworth Sherwood’s specialist Housing Finance team has advised Sovereign Housing Association on the first unsecured club facility in the social housing sector.
The loan agreement, which makes a £250m revolving credit facility (RCF) available to Sovereign, is unsecured. Completed in June 2019, it took around 4 to 6 weeks to agree with the lenders (NatWest, Lloyds, MUFG, National Australia Bank and SMBC). Initially available for three-years, the RCF also contains the option to extend the facility twice, by 12 months on each occasion, taking the prospective maturity to five years.
Louise Leaver, Head of the Housing Finance Team, said: “we were delighted to act for Sovereign on the largest unsecured RCF in the sector to date. Loan agreements with multiple lenders have a number of benefits for borrowers. On this transaction, although there was a syndicate of five lenders, negotiations on the documentation were conducted through the agent, NatWest. This streamlined the process from Sovereign’s point of view and reduced the need to negotiate separately with all five lenders to reach an agreed position. Multi-lender facilities like this offer other benefits to borrowers: larger loans should be available, as lenders can spread the risk. There should also be operational efficiencies, as the borrower has a single facility agreement with one set of covenants and liaises with one contact (the agent) – rather than multiple agreements, with different covenants and lenders to deal with.”
The RCF is unsecured, so properties do not have to be charged to the lenders. As is common in unsecured lending, however, there is an unencumbered asset test. A key benefit of unsecured lending, Louise Leaver says, is to utilise the value of a wider pool of assets, which provides greater flexibility for borrowers. The test can include some types of properties that are traditionally not charged or are difficult to charge, such as properties under development, market rent and shared ownership. “As for all unsecured loans, it was particularly important to Sovereign that the parameters for calculating the unencumbered asset covenant were well thought through and agreed by all parties from the outset”.