You are viewing 1 of your 1 free articles
Barclays allows landlords to renegotiate LOBOs
Housing associations are being allowed to renegotiate one-sided loans agreed at the height of the credit crunch, to prevent them being forced to wipe millions from surpluses.
Barclays has been allowing around 15 landlords with ‘lender option borrower option’ loans (LOBOs) to renegotiate the terms in exchange for a higher margin or cash compensation.
The loans, which were agreed in around 2009 when few lenders were offering any deals, give the lender the option to unilaterally change the interest rate at set points.
It is understood Barclays is allowing landlords to remove this option, effectively converting them into normal long-term loans, in exchange for compensation.
The associations were warned last summer that changes to accountancy regulations would force them to account for the loans differently from 2016 – wiping a potential £500m from surpluses.
Adrian Bell, head of debt markets UK at Canaccord Genuity, said: ‘Barclays are undoubtedly being very understanding on the desire of housing association clients to get rid of the optionality.
‘That may be because they have seen it as something that had turned into a reputational issue for them, but they have behaved in a very responsible and sensible manner.’
Removing the optionality takes away the accounting risk from the loans. It is understood Barclays is requiring either a higher margin, an upfront payment or a combination.
Jonathan Pryor, a partner at accountancy firm Smith and Williamson, said: ‘The route out is, I believe, by replacing the existing loan agreement with a new one without the optionality, in exchange for a higher margin/additional fee.’
Barclays recorded a write-down of £935m on its loan portfolio to universities, councils and housing associations in its full year accounts for 2014.
A spokesperson said this was a result of changes to the way loans were valued. It did not comment on the renegotiation of LOBOs.
