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Notting Hill renegotiated bank loans after ‘subsidiary’ structure rejected
Notting Hill was required to renegotiate some of its bank loans following its recent merger with Genesis after lenders rejected a plan to avoid doing so, Inside Housing understands.
Notting Hill completed its merger with Genesis to form a 64,000-home housing association in April, one of the largest associations in London.
However, the organisations had originally planned to structure the deal with Notting Hill being ‘acquired’ as a subsidiary of Genesis with the full merger being carried out at a later date.
This would have required fewer consents from lenders and would have potentially removed the need to renegotiate historic cheap bank lending secured before the financial crisis.
But sources say that the banks refused to accept what they saw as an artificial group structure, leading to Notting Hill eventually renegotiating and accepting less favourable terms on some of its loans.
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A year ago, Elizabeth Froude, deputy chief executive of the merged organisation, told Inside Housing: “Theoretically [the subsidiary position] could last forever; realistically, it doesn’t necessarily want to last forever because there will be efficiency gains to be made from doing something else.”
However, a source close to the merger told Inside Housing this week that this plan was abandoned after conversations with lenders.
According to the source, Notting Hill then had to renegotiate a number of its historic low-cost loans and, as would be expected for deals struck after the financial crisis, achieved less favourable terms.
The 64,000-home merger was intended to achieve combined savings for the two organisations of £20m a year, which the associations said would fund 400 extra homes a year.
Notting Hill Genesis – as the new organisation is called – says the renegotiation will have no impact on the planned savings.
A Notting Hill Genesis spokesperson said: “We had initially intended to complete the merger by Genesis acquiring Notting Hill with a longer-term plan to amalgamate the two organisations at a later date.
“After our initial discussions with our funders, we decided it would be better if we proceeded directly to an amalgamation. This has made no difference to our predicted annual savings.”
In April, credit ratings agency Moody’s predicted that the merger would damage profitability, despite bringing efficiency savings due to a weaker financial performance in Genesis’ social housing business.
The agency downgraded Notting Hill’s credit rating, which was then still separate from Genesis’, to Baa1 from A3 due to its merger with the lower-rated organisation. Genesis, meanwhile, was upgraded from Baa2 to Baa1.
Its judgement read: “Although Moody’s expects Notting Hill Genesis to realise efficiency savings as a result of the merger, Moody’s expects the merged entity will have lower profitability than Notting Hill has had historically in the medium term.”
