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Riverside completes £100m ‘first of its kind’ SONIA-linked loan facility
Riverside Group has secured a £100m revolving credit facility indexed exclusively on a Sterling Overnight Index Average (SONIA) interest benchmark.
Riverside said the deal, which sees the restatement of its existing facility with Lloyds Banking Group, will “future-proof” the group’s credit line with the London Interbank Offered Rate (LIBOR), which is due to stop at the end of 2021.
The 56,000-home association said it is the first fully operational facility in the sector where the interest rate is indexed to a risk-free reference rate.
LIBOR is estimated daily by experts based on the rate at which banks can borrow from each other and can have forward-looking term rates. However, SONIA is calculated by looking at transactions from the previous day.
Forward-looking rates mean borrowers can have certainty over future liabilities while SONIA-linked loans mean borrowers do not know the exact amount of interest owed until they must pay.
The Financial Conduct Authority (FCA) announced in July 2017 that the LIBOR benchmark would be phased out by 2021 and said that SONIA offers a “robust” alternative to LIBOR which is anchored to an active and liquid underlying market.
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Cris McGuinness, chief financial officer at Riverside, said: “We are grateful to our funding partners at Lloyds, particularly Paul Stanley, for embracing the opportunity to enter the RCF [revolving credit facility] on a SONIA basis and for continuing to provide liquidity in times of uncertainty.
“We hope that our input into the SONIA mechanics will help pave the way for other registered providers and social landlords in the future.”
Carol Matthews, group chief executive of Riverside, said: “At Riverside, we’ve always prided ourselves on moving proactively so that we are ready to meet whatever challenges we face. Being the first registered provider to secure a facility using the SONIA rate is testament to that.”
Gary Grigor, banking partner at Devonshires, which advised Riverside on the deal, said: “The new arrangements don’t come without their challenges and so now more than ever it’s important that all RPs [registered providers] and RSLs [registered social landlords] engage with experienced lawyers to plan for the implementation of the new arrangements for their business.”
An independent treasury advisor group previously warned that the social housing sector could see an increase of more than £1bn in its exposure to derivatives when LIBOR ends.
