The impact of COVID-19 is keenly felt across most businesses. In many cases, its outcome may result in a technical breach of funding covenants which means your funders may have far-reaching powers. We provide some top tips for the best results for your organisation.  

The issue

As lockdown in the UK continues and the Government tries to protect individuals and businesses, many are now struggling to comply with funding covenants.  Even modern funding arrangements, which tend to be “covenant light”, often include covenants that could pose difficulties:  For example, as an increasing number of residents are unable to pay their rent, impacting on revenue.  Loan to value covenants may be in danger of being breached.

Breach of these covenants usually give funders a number of potential remedies, including accelerated repayment or blocking access to liquidity facilities. 

In practice

Institutions are currently paying heed to advice from the Government and from the regulators to take a measured approach. Registered Providers generally still offer a stronger covenant than many other businesses and so you can usually expect funders to take a conciliatory approach, working in co-operation with you. 

Top tips

For the best result for your organisation, we recommend that you:

1. Speak to your funders/investors: Identify and explain where pinch points may arising in the coming financial year, and what you are doing to mitigate those issues.  Demonstrating an understanding of the challenges, and a strategy to steer the ship through these rocky waters, will increase confidence in your business and make funders see you as a long-term investment.
2. Review your funding documents and understand your position: Make sure you understand which (if any) covenants you may breach and what penalties and potential grace periods could apply.  This will strengthen your negotiating position with the funders as you look to improve your position.
3. Consider what to offer to the funders: Think about what you can offer to your funders to give them additional comfort. For example, more reporting and/or evidence of other mitigating steps that you have taken.
4. The Regulator of Social Housing: Don’t forget to notify the RSH if necessary.  Keep them in the loop, and speak to them early, as they can offer helpful guidance and assistance and this area is a priority for them.

In conclusion

The best relationships between RPs and funders are based on open and regular communication.  Don’t put your head in the sand, but don’t worry unnecessarily either. RPs should expect a practical co-operative approach from their funders. Ensure that you give them as much information as possible and demonstrate that you understand the position that you find yourself in. 

How can Capsticks help?

Capsticks offers a full service solution to the housing sector and advise on all kinds of funding arrangements for Registered Providers, including security charging, governance and contractual advice.

If you have any queries around what's discussed in this article, and the impact on your organisation, please speak to Susie Rogers or Stephen Dove to find out more about how Capsticks can help.