Monday, 20 October 2014

Cosmopolitan investors could be left empty-handed

The investors that own a large proportion of stricken Cosmopolitan Housing Group’s student stock could be left with nothing if the 14,000-home landlord does not secure a rescue merger deal.

The social housing regulator’s plan to place Cosmopolitan in a moratorium if it fails to strike a deal with new suitor Sanctuary means the investors are under pressure to reduce the rent levels they are charging or face losing all future income, it has emerged.

Last week 80,000-home Sanctuary stepped in and replaced Riverside as a prospective buyer of Cosmopolitan, but the regulator warned there was a lot of work to do before any deal could go ahead.

Under the Homes and Communities Agency’s back-up plan, it would use the 28-working day moratorium to safeguard Cosmopolitan’s social housing assets. This would involve the sale of its social homes in order to pay off the group’s secured creditors.

The 9,000 homes could, under these circumstances, be bought by a single provider or in smaller chunks.

However, a moratorium would not result in debts to unsecured creditors being paid. These include the owners of many of Cosmopolitan’s student developments, who are understood to have been holding out in talks over the terms of these leases.

A successful sale of the social homes could therefore leave investors empty-handed.

The leases, which have caused much of Cosmopolitan’s financial difficulty because they were guaranteed against its social homes, were used to fund around two thirds of its existing student stock.

Riverside is thought to have wanted Cosmopolitan to have sold these leases or agreed better terms on them before agreeing to a merger. The 54,000-home landlord pulled out of talks as it appeared the two sides were not close to striking a deal.

The HCA would not rule out the possibility that, under a moratorium, either Riverside or Sanctuary could buy all or some of Cosmopolitan’s social stock.

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