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Swan breaches loan agreement with lender due to late filing of accounts

Swan Housing Association has breached an obligation under its loan agreement on a £250m bond after it was late filing its annual accounts. 

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Troubled landlord Swan Housing Association has breached a loan agreement on a £250m bond funded by a global investment firm after it was late filing its annual accounts #UKhousing

In a statement to the stock market, M&G Trustees said a breach had occurred under the terms of the loan agreement, as the landlord had failed to deliver its audited financial statements, including its balance sheet and profit and loss account.

The Trustees said the breach will “constitute a borrower default under the loan agreement if it continues for the period of 30 days”.

The stock market update explained that the investment company is not bound to take any enforcement action unless it has been directed to do so by an extraordinary resolution, or the holders of at least one-fourth of the outstanding principal amount of the bonds have requested it in writing.

M&G Trustees acknowledged that auditors were unable to complete their audit of Swan’s accounts for the financial year up to March 2022 because of the collapse of its year-long merger discussions with Orbit.


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The financial audit is due to be completed if a merger with Sanctuary goes ahead, which has been given a completion date of 30 November 2022, subject to satisfactory due diligence. 

As a result, M&G Trustees said it is “currently minded not to serve the notices” of breaches under Swan’s agreement “to enable sufficient time for the merger to take effect and the breaches to be cured unless directed and indemnified, secured and/or pre-funded to its satisfaction”.

“M&G and its advisors will continue to monitor developments in respect of the breaches and the Sanctuary merger and will reassess this position in light of any adverse developments,” the update added.

Inside Housing reported yesterday that Orbit had advanced the association a secured loan of £25m, which was subsequently increased to £40m in March 2022, after merger talks were announced in December last year. 

During the merger process, an audit of Swan’s 2021/22 accounts by Grant Thornton revealed a potential annual impairment of £178.4m in relation to its development plans.

The auditor said it had “insufficient assurance” on the level of impairment and that the landlord remains a “going concern” on the basis of a merger. 

Last week, Swan was named as one of three landlords that had announced they would be submitting their financial accounts late to the Regulator of Social Housing (RSH) this year.

The trading update revealed that talks with auditors about the timing of the signing of the audited accounts and the wording in the auditor’s report are still continuing.

On the same day news of talks between Orbit and Swan emerged last year, the RHS rated Swan non-compliant on governance and financial viability.

The regulatory judgement said the downgrade was partly caused by a “material deterioration” in Swan’s financial position.

When the landlord’s merger talks with Orbit broke down at the end of last month, Sanctuary announced on the same day that it had “entered into discussions with Swan Housing Association to form a business combination”.

If the talks are successful, Swan will become a subsidiary of Sanctuary.

The stock market update also revealed that Swan is in discussion with Sanctuary to refinance the Orbit loan and replace it with a loan of its own.

Swan is not the only organisation that has sought to refinance a loan agreement or come close to a covenant breach over the past few months. 

Shepherds Bush Housing Group (SBHG) was rated non-compliant in June on governance matters after the RSH identified issues that allowed the association to come “within weeks of a potential loan covenant breach”.

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