The Riverside Group has completed what is thought to be the first SONIA-linked £100m revolving credit facility (RCF).
The arrangement with Lloyds Bank is a restatement of Riverside’s existing facility, and the parties said it is the first known fully operational facility in the sector where the interest rate is indexed to a risk-free reference benchmark.
They said this helps to “future-proof” the credit line, following the Financial Conduct Authority (FCA) and Bank of England (BoE) announcement that the London Inter-Bank Offered Rate (LIBOR) will be discontinued from the end of 2021.
Devonshires advised the 56,000-home Liverpool-based provider on the agreement and its switch to the Sterling Overnight Index Average (SONIA) on the loan.
Riverside has more than £450m in drawn bank loans, according to its 2018/19 accounts, along with £250m in bonds.
Cris McGuinness, chief financial officer at Riverside, said: “We are grateful to our funding partners at Lloyds for embracing the opportunity to enter the RCF 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, chief executive of Riverside, added: “In these difficult times, our key focus remains providing the best service possible to our customers and ensuring that both they and our colleagues are safe. Having access to the funds we need to run our business in a different way underpins our ability to do this.”
David Cleary, head of housing at Lloyds Bank, said: "Supporting Riverside to restructure and extend its borrowing facilities in this manner is a significant step forward for the sector.
"The association’s desire to ensure that the new facility was future-proofed against known changes to LIBOR-denominated borrowing is testament to Riverside’s proactive approach. Its willingness to help shape SONIA-focused documentation will ultimately drive positive change in the sector’s future approach to funding."
Gary Grigor, partner at Devonshires, added: “In the absence of a tried and trusted blueprint, being the first to implement SONIA doesn’t come without its challenges, but this deal sends a strong message out to the sector as a whole that now is the time to ramp up the deal flow by embracing the risk-free reference rate.”
The move to SONIA has major implications for all existing loan agreements, swaps and new transactions.
The bond markets have seen a handful of SONIA-linked deals over the past 18 months. The first in the public market was by the European Investment Bank in 2018.
Council bonds agency the UK Municipal Bonds Agency issued its maiden deal linked to SONIA at the start of March this year.
The switch to the new benchmark follows a breakdown in trust in the way LIBOR was calculated, following revelations that derivative traders at some of the major banks were manipulating the rate.
The FCA and the BoE continue to work with market participants “to catalyse a transition to using SONIA as the primary interest rate benchmark in sterling markets”.
They were encouraging market makers to change the market convention for sterling interest rate swaps in the first quarter 2020, to reduce the risks from creating new LIBOR exposures.