Wednesday, 29 March 2017

Financial woes of Liverpudlian landlord could pave way for new 68,000-home association

Troubled Cosmopolitan in rescue merger talks

Cosmopolitan Housing Group has entered merger talks with The Riverside Group after serious financial difficulties came to light at the Liverpool-based landlord.

An internal investigation is being carried out into CHG’s finances after fears it was in danger of breaching its loan covenants.

The merger, which has been described as ‘a rescue’ by insiders, would create a 68,000-home north west giant. It would mark the first time since the start of the financial crisis in 2008 that a housing association has bailed out a rival.

The news comes just weeks after Inside Housing revealed that CHG was forced to scale back its development plans by a third following last year’s £1.3 billion merger with Chester & District Housing Trust.

John Denny, chief executive of CHG, admitted funding problems had pushed the 14,000-home landlord towards a second tie-up.

‘For Cosmopolitan to carry on as it was would have meant the services to our residents would have suffered and that’s a price that I don’t think anyone should be willing to carry,’ he said.

Earlier this month Rob Thompson took over as CHG chair from Bill Snell, who resigned for personal reasons.

The group’s financial problems are understood to revolve around funding for its student housing business.

These arrangements, involving on-balance sheet guarantees for investors, have come to light since last year’s merger with CDHT.

‘They took on a ticking financial timebomb,’ said one source close to the situation.

The merger with 54,000-home Riverside depends on agreement from the two organisations’ lenders. There are concerns the banks could use the potential tie-up to reprice their loans.

‘We’ve talked to lenders and no deal will happen without reasonable behaviour from [them],’ said Carol Matthews, chief executive of Riverside.

The Homes and Communities Agency has been monitoring the situation since early 2012. CHG entered into a voluntary undertaking with the regulator in the summer which committed it to developing a rescue plan.

The HCA also encouraged the group to take on four ‘co-optee’ board members to address governance and financing issues.

Matthew Bailes, director of regulation at the HCA, said: ‘The regulator has been clear that they must make progress in tackling governance and viability issues at the organisation. We are supportive of Cosmopolitan’s plan to find a strong partner and are continuing to monitor the situation closely.’

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