Wednesday, 16 April 2014

Regulator on standby as landlord faces 31 March deadline to agree a merger

Cosmopolitan: clock ticking on rescue

Stricken Cosmopolitan Housing Group is likely to go bust at the end of March unless a rescue deal with Riverside is completed.

The spring deadline emerged as the next due date for Cosmopolitan’s payments on the ‘toxic’ leases taken out to fund its student housing arm. The group has been consistently losing money on its quarterly lease payments, which are understood to be far in excess of the revenue recouped through monthly rent collections on its student housing.

A number of sources have expressed concern that the next set of payments will leave 14,000-home Cosmopolitan trading insolvent.

Riverside, which owns and manages 54,000 homes, is unlikely to go ahead with a deal until the loans - believed to be worth at least £100 million - are off Cosmopolitan’s books.

The housing regulator is preparing for a ‘moratorium’ for Cosmopolitan, which would see it step in as a de facto administrator should the merger collapse.

Writing for Inside Housing, Julian Ashby, chair of the Homes and Communities Agency’s regulation committee, branded the Cosmopolitan saga ‘the most serious problem case of the past 30 years’.

He further warned that ‘one major failure’ could threaten the sector’s credit worthiness.

Under a moratorium, the HCA would make offers to Cosmopolitan’s creditors, including the owners of its student housing leases. It is likely that the owners or their backers would lose a substantial part of their investment should this happen.

A source close to Cosmopolitan said: ‘Riverside has been very clear about what they expect to happen and that’s for the student lease deals to be sold away. Their position on these toxic liabilities has matured and they’ve said they want them sorted out pre-merger.’

Cosmopolitan has managed to make payments on the leases in previous quarters after it arranged a last-minute overdraft facility of £2.5 million with Santander in the summer. It also agreed a £1 million ‘stand-by’ facility with Riverside but this has not yet been drawn down.

Cosmopolitan has since hired consultancy Pricewaterhouse Coopers to advise on negotiations over the leases.

In a joint statement Riverside chief executive Carol Matthews and Cosmopolitan chief executive John Denny said: ‘We continue to believe that a union between our organisation is the ideal outcome. However this is only provided a deal can be struck which supports a viable business plan.’

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