You are viewing 1 of your 1 free articles
Lloyds relaxes on major repairs in loan covenants for landlords to free up £3bn for retrofit
Lloyds Banking Group has been relaxing the repairs element in loan covenants for housing associations to free up cash for retrofit projects, delegates at the Scottish Federation of Housing Associations (SFHA) conference have been told.
The major bank has removed the MRI (major repairs included) element from EBITDA (earnings before interest, tax, depreciation, amortisation) interest cover covenants for some housing associations over the past 12 months, its regional head of housing said.
Melanie Russell explained that this move has freed up money for landlords to spend on decarbonisation, and supporting the environmental, social and governance agenda.
Speaking on a panel at the SFHA conference in Glasgow on 11 June, Ms Russell said that a year ago, carve-outs would have been the only answer to help housing associations with their retrofit costs.
In the past year, however, there has been “a real shift”, she said.
READ MORE
Ms Russell explained: “It’s still dealt with on a case-by-case basis and I know all of the lenders do not necessarily have the same view, but… we are looking at the detail of those interest cover covenants and in some cases where the numbers stack up, we are going to remove the MRI element to it.
“We think that that has released £3bn of capacity across the UK into the sector… It’s not the only answer, but it’s one that’s starting to help a little bit.”
Inside Housing understands that Lloyds has relaxed covenants for housing associations across Britain in the past 12 months, not just Scotland.
The lender is still looking at carve-outs for housing associations in other places, such as fire safety costs.
Fellow panellist Nick Pollard, finance director at housing association Link Group, said he had been “surprised but very pleased” about lenders’ understanding and ability to change from EBITDA MRI to EBITDA.
“Fundamentally, however, this is a cash business and cash is… still a limiter on that capacity,” he said.
“We have to generate that cash, otherwise it is going to be borrowing that we use, which we really don’t want to.”
Mr Pollard added: “If anyone is moving forward at the moment and they are thinking of raising financing, then I would say to them consider the EBITDA only position, rather than EBITDA MRI, and look to renegotiate your existing debt book if you can.”
Ms Russell’s comments came after Inside Housing reported that EBITDA MRI interest cover will fall below 100% for the majority of London’s largest associations this year.
The figure, which measures a landlord’s surplus compared to interest payable, is a key indicator of financial health and investment capacity.
An MRI interest cover below 100% is manageable in the short term, but if maintained over several years, it could present serious challenges around liquidity and viability.
Andy Hulme, group chief executive at Hyde, told Inside Housing that the association’s yearly investment in existing homes has risen 20% in the past two years, while its surplus margin has fallen by a third in the same period due to government rent caps.
“It becomes a cash issue,” he said. “Do you have enough money in the bank account, basically. You can’t do it every single year. It’s a bit like spending more money than you earn every month.”
The English regulator’s latest quarterly survey of registered providers’ financial health, published in March, found that interest cover across the country has fallen to the lowest level ever recorded.
Sign up for our development and finance newsletter
Already have an account? Click here to manage your newsletters
