Sanctuary poised to save troubled Cosmopolitan

Cosmopolitan board members were asked to ratify merger terms on Tuesday, with Sanctuary potentially inking the deal before the end of the week.

Cosmopolitan has been seeking a merger partner since it was plunged into a liquidity crisis last autumn. A merger would create the UK’s biggest social landlord, with a portfolio of 94,000 homes.

Negotiations between the two landlords, their creditors and the social housing regulator have progressed rapidly in recent weeks.

However, no final agreement had been reached at the time of writing and the Homes and Communities Agency regulation committee has kept in place plans for a ‘moratorium’ to protect Cosmopolitan’s social housing assets should negotiations collapse.

A source close to the talks said the working assumption was that the deal would be done this week.

‘It’s fair to say that everyone involved felt the need to get on with this,’ said the source but added that agreement was ‘by no means certain’.

The end of March had been the due date for the next set of payments on Cosmopolitan’s student housing leases, regular losses on which precipitated the 14,000-home landlord’s financial downfall. However, it is understood that some of these payments have already been made.

Although these leases are loss-making, it is understood that Sanctuary will take them on without forcing the lease owners to take a ‘haircut’ - a revision of terms that would reduce investor profits but make them financially viable for the landlord. The leases are worth in excess of £100 million.

Original merger partner Riverside had previously made it clear that it would not consider a takeover unless the student leases were sold or the terms eased. However, it is thought that Sanctuary has been more willing to take on Cosmopolitan’s 5,000-home student business as it already operates a student housing arm, managing around 7,500 homes.

The regulator is believed to be comfortable with the 80,000-home landlord taking on the financial risk associated with these homes.

The deal is also dependent on Cosmopolitan filing its 2011/12 accounts - and restating accounts going back several years - before the end of March. It was given a six-month extension by its bank lenders to file accounts, allaying fears that it would breach lending covenants. However, that extension will expire this weekend.

All the parties involved declined to comment.