Barclays’ Lender Option Borrower Option poses a ‘significant risk’
Associations court danger in bid for cash
Housing associations’ thirst for extra cash is leading them to swap stable, long-term loans for risky deals, financial consultants have warned.
Investment management company Traderisks estimated that around 30 housing associations were about to close on the loan deals, known as Lender Option Borrower Options.
The deal, offered by Barclays, is currently one of the only routes available to housing associations looking to raise new cash in the banking market. The catch is that when accepting a LOBO, landlords must replace their existing cheap and stable bank loans.
With a LOBO associations are given a fixed interest rate to start, which the bank can change at fixed dates throughout the period of the loan. The landlord must then either agree to the change or repay the loan.
Traderisks director Antoine Pesenti said: ‘[Through] LOBOs housing associations are replacing safe, 30-year facilities with new facilities that could end in five years’ time, creating a significant refinancing risk in this very uncertain future.’
Alex Pilato, chief executive of Traderisks, said the deals were so complex that associations would find it impossible to work out the true cost.
‘When the only lending that takes place takes place in a non-transparent way you are missing the opportunity to get the market moving again.’
A finance services manager for a major landlord said: ‘In today’s market particularly you don’t want to have any refinancing risks on your books - not when you can’t access capital funding.’
Calum Mercer, group finance director at Circle Anglia, said any organisations requiring funding must ensure they ‘understand the implications of both the pricing and the terms of the deal on their long-term aspirations and financial position’.
Barclays declined to comment.