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Orbit and Swan have revealed that they are in merger talks on the day that the latter was rated non-compliant on governance and financial viability by the Regulator of Social Housing (RSH).
In a stock market update this morning, Orbit said: “The boards of Orbit Group and Swan Housing Association are today announcing that they are in discussions to form a partnership.”
It added that it acknowledged the matters raised in the regulatory judgement and that it is now working with Swan on the findings.
A merger of the two housing associations would create a 60,000-home organisation. It is expected that the transaction will complete late next year.
It comes as the RSH announced today that Swan has been given a rating of G3/V3, meaning it is non-compliant with both the governance and financial viability standards.
In a judgement published today, the regulator said: “There has been a material deterioration in Swan’s financial position since its last business plan was submitted to the regulator.”
“This includes the identification of a significant adverse variance in its future development costs, largely due to the ineffective management of its development programme and its development subsidiary,” the regulator added.
According to the regulator, the 11,600-home landlord has seven unregistered subsidiaries, including Swan New Homes, which develops and sells new homes in Essex and east London.
“Increased development costs coupled with delays to sales has increased pressure on Swan’s financial covenants,” the regulator said.
The housing association’s ability to maintain covenant compliance is reliant on the continued co-operation and agreement of third parties, it added.
This represented a “fundamental loss of control on the part of the board and executive”, the regulator said.
Swan currently plans to develop 2,200 new homes over the next nine years of its development plan.
The regulator said it is “not assured of the robustness and quality of the data being used by Swan to inform its financial planning and reporting” as the information that Swan has provided to it has been “inconsistent”.
Overall, the regulator said it “lacks assurance that Swan has the financial capacity to manage its exposures, is effectively monitoring its covenant compliance, and has been unable to gain evidence that Swan’s mitigation strategies will be effective in practice”.
Swan was first placed on the regulator’s ‘gradings under review’ list – meaning it was being investigated for a matter that could lead to its non-compliance – last month.
It came a month after it was revealed that John Synnuck, Swan’s chief executive, would be standing down from his role next year after 28 years in charge of the landlord.
The regulator said that Swan was engaging with it “to address the issues raised in this judgement” and that the association has “commissioned external advisers to assist it in doing so”.
“The regulator will work with Swan and its external advisors to address the weaknesses identified,” the judgement said.
Swan’s chair Pat Billingham said: “We accept the regulator’s findings. We have been working proactively with the regulator since it issued a ‘Grading under review’ notice and have in progress a series of actions to deal with the immediate challenges seen within our business plan.
"We remain committed to the communities we serve and will continue to work with the regulator to address its findings in this judgement.”
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