Associations hit by £315m of cash calls

The Tenant Services Authority revealed that the amount demanded from associations jumped dramatically in the last quarter. The £315 million figure is roughly three-quarters of the amount housing associations were faced with in January last year – which prompted concern that some of them would face cash flow problems.

The demands come as banks seek security for complex financial instruments known as ‘stand-alone swaps’. Associations took out the deals to guard against interest rate rises, but banks have the option to call in security at short notice.

In its quarterly report, published yesterday, the TSA said that the sector is now better placed to deal with the cash calls.

It said many associations now provided security rather than cash, ‘further mitigating any remaining cash flow or covenant compliance risk’ seen previously.

A spokesperson for the regulator said: ‘The latest quarterly showed that only one third of the providers subject to a margin call were expected to provide cash - the remainder were able to offer security as an alternative. No provider has reported covenant compliance or viability issues as a result of a margin call.’

Mark Washer, finance and resources director at Affinity Sutton, said housing associations were now more familiar with the risk of cash calls.

‘Because this was expected associations had the funds in place beforehand,’ he said.

James Tickell, of consultancy Campbell Tickell, said: ‘The problem in the past was that it takes months to offer security as an alternative to cash and the cash calls caught some people unprepared.

‘People are prepared now because they understand the risk, especially after some high profile cases where people nearly had their fingers burnt.’

The quarterly update also reveals a significant increase in associations raising money through bond finance – with £818 million being raised in the nine months to 31 December 2009. It adds that if the trend continues ‘it is possible that funds raised through bond finance could almost equal traditional bank lending by 2010/11’.

Have your say

You must sign in to make a comment