Hyde restructures £1bn swaps portfolio as part of refinancing

News27 Nov 2017Luke Cross

Hyde has restructured the majority of its derivatives as part of a refinancing in its parent association.

The group restructured £915m of swaps, leaving £312m in place carrying an average fixed rate of 4.21 per cent.

The move comes amid a £760m refinancing in the parent entity Hyde Housing Association.

Peter Denton, group finance director, said it signals the final stage of the group’s current financing strategy.

Five existing banks supported the changes, which Mr Denton said gives Hyde a “modern and flexible financial framework” while supporting its ambition to deliver 1,500 homes per year.

Mr Denton said the 50,000-home group now has “very little maturing debt over the next three years, a fully funded development programme and approaching half a billion pounds in the bank”.

Rothschild advised on the transaction, having also worked with the likes of L&Q, Places for People, Peabody and Notting Hill.

The restructuring follows the group’s £400m, 35-year 3 per cent coupon Martlet Homes bond issue in May 2017 and brings the total bond and bank finance raised and restructured by the Hyde Group this year to £1.3bn.

The derivatives restructure has cost £173m but will result in a saving of around 0.2 per cent per annum, reducing Hyde’s cost of capital, he added.

Mr Denton said overall it provides “an already-strong Hyde with even greater resilience against any future economic or property market downturn”.

“Although already in good shape, our finances are now up-to-date and more straight-forward,” he added.

The refinancing in Hyde HA creates £150m of new loan facilities taking group debt to £2.1bn.

Some term loans have been switched to revolving credit facilities, creating £325m of overall additional RCFs, an average weighted life of 19 years and £103m of loans maturing in the next three years.

In 2017, Hyde generated an underlying surplus before derivatives’ charge of £98.4m against the previous year’s £95.4m. There was a negative impact of £36.8m, returning a £61.6m surplus after derivatives, which also added a net £36m to the group’s interest costs, with £327.6m of liabilities at fair value on the balance sheet.

Accounting under UK GAAP in 2013 and 2014 saw both negative and positive impacts of around £27m. The accounting change in 2015 saw increased volatility with adjustments of negative £109.6m and £73.3m.

The £173m ‘closing out’ or restructuring was done “at an attractive discount”, with Mr Denton saying the estimated net impact of break costs and mark-to-market movements this financial year is £27m.

As well as a reduction in cost of capital, it is also a way of “simplifying and reducing the volatility of its hedging portfolio and allowing for the release of £120m of property security”.

The refinancing also had an impact on the group’s latest regulatory assessment.