Tuesday, 25 April 2017

Owners of student housing leases drag their heels as the regulator issues a damning report

Cosmopolitan deal in doubt

Riverside’s proposed takeover of ailing Cosmopolitan Housing Group has been delayed and is in danger of collapsing after it emerged that a large group of creditors is putting the deal under pressure.

An exterior view of the offices of Cosmopolitan Housing Association

The owners of at least £100 million of leases taken out to fund CHG’s student housing business have yet to agree a settlement with Riverside in a move that an insider has described as ‘brinksmanshp’.

Negotiations with the lessors will need to reduce the financial burden on CHG if the Riverside deal is to go ahead.

The Homes and Communities Agency’s regulation committee is continuing to monitor the situation and has put in place contingency plans that would likely result in CHG being declared insolvent. That situation could leave the owners of the leases even more out of pocket.

Riverside has said that it is still committed to the merger but that it would not go ahead if it ‘put at risk its core business’. The 54,000-home association further admitted that it was unlikely to reach a deal before Christmas.

The news emerged as the HCA today published a damning regulatory judgement, giving CHG the worst possible rating for both its financial viability and governance.

In a statement Carol Matthews, chief executive of Riverside, and John Denny, chief executive of CHG, said: ‘We are very much at the table on the detail of this deal. The sale and leaseback leases are complex, and we need to achieve a balance which is fair to all parties and which recognises the potential risk to hundreds of millions of pounds of public money.’

Negotiations with bank lenders over the possibility of repricing existing loans are thought to be progressing more smoothly.

CHG’s financial plight first came to light this summer when guarantees given to the financiers of its 3,500-strong student housing subsidiary were discovered to be on-balance sheet obligations. The late discovery of these obligations led to a delay in filing accounts and a subsequent breach of financial covenants.

The HCA’s damning regulatory judgement on CHG criticised it for failing to review its student housing business following last December’s merger with Chester and District Housing Trust.

According to the judgement, there were ‘major shortcomings’ around governance, risk management and financing. These included ‘a failure to recognise and manage operational risks’.

Mr Denny admitted the judgement was ‘of serious concern’ but pledged to resolve the issues.

Privately the HCA is understood to be examining its own role in approving last year’s merger. It is expected to beef up its scrutiny of organisations’ non-social housing businesses.

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