L&Q and East Thames complete merger and £2.6bn refinancing

The pair announced the conclusion of their merger to the stock markets this afternoon, following a year of detailed negotiations.

They create a new 90,000-home organisation, which will retain the L&Q brand and has set out a £15bn plan to build 100,000 new homes – half of which will be affordable.

As part of the deal, the pair have renegotiated existing loan covenants with the following banks: Dexia, Barclays, Lloyds, Santander, RBS, Royal Bank of Canada and HSBC.

East Thames chief executive Yvonne Arrowsmith and L&Q chief executive David Montague said they had made a “conscious decision” to pursue the refinancing, as opposed to nearing loan expiries. This is believed to be one of the biggest refinancing packages in the housing sector to date.

L&Q was unable to give a specific breakdown of the banking agreements, but said that new capital structures would deliver a lower long-term cost of capital, as well as an “improved liquidity coverage ratio that provides resilience against future market and economic conditions”.

The newly merged organisations will have an asset base worth £22bn. The 10-year financial plan includes £15bn gross capital expenditure in building new homes, with a target of 100,000 new homes over the next decade, across the full range of tenures, split equally between sub-market rented, affordable homeownership, market rented and market sale.

Mr Montague, who continues as chief executive of the new organisation, said: “Despite all of the uncertainties in the global market, every one of those eight banks have backed us.

“We’ve given our banks an option, and they all want to be part of our future. It’s predominantly development debt: we borrow to develop.”

Mr Montague said the refinancing coincided with a “massive sea change in the government’s attitude towards housing”, demonstrated by commitments from the mayor of London Sadiq Khan and the chancellor Philip Hammond who have both released billions of fresh capital for affordable housing in recent weeks.

East Thames and L&Q also announced this week that they were preparing to launch a new supported housing arm called L&Q Living, which will be seeded with 6,600 homes and have a target turnover of £47m.

The merger was initially proposed as a three-way deal with Hyde Housing, although Hyde dropped out in the summer over concerns about the planned pace of integration post-merger.

The completion of the deal follows Affinity Sutton and Circle’s successfully completed merger last week.

UPDATE: At 9.40am on 7.12.2016

This story was updated to make it clear that seven banks, not eight, were involved in the refinancing. Nationwide should not have been included.