The new 15-year agreement is supported by a tailored ‘loan-linked ISDA’ arrangement which provides flexibility to Choice in how it manages its interest rate risk, as well ensuring any cost of carry is minimised as it delivers a significant development pipeline of 947 affordable homes in Northern Ireland.
Michael McDonnell, Chief Executive of Choice Group, said: “We are pleased to announce this new loan facility from Ulster Bank. As a result of this arrangement, we are able to access funds quickly and effectively and have fixed our cost of long-term finance.
“The cost-of-living crisis, high inflation and geo-politics have impacted every sector across society and social housing is no exception. Whilst our performance in terms of meeting our social homes targets has been good, this facility will support us greatly as we take forward our development plans.
“We engaged with Savills Financial Consultants to find a tailored, competitive financing solution that aligned with our wider business objectives to invest more in our social housing pipeline. We are very pleased with the engagement with Richard and Claire at Ulster Bank and the resulting financial package.”
Loan-linked ISDAs are a relatively new approach to interest rate hedging for the housing sector. The hedge has a specific contractual link to the underlying loan and therefore to the security underpinning that loan. As a result additional security is usually not required from the housing provider to cover any risk related to the hedge.
This approach offers Choice additional flexibility to help manage its interest rate risk compared to a standard fixed-rate loan. For instance, the interest rate swap can be structured to hedge just a proportion of the loan amount and/or the term of the loan.
Alex Morgan, Director at Savills Financial Consultants, said: “We have worked closely with Choice from the outset of this transaction to achieve a flexible solution that provides our client with the certainty they require, without over-committing in a high interest rate environment. The teams across all parties to the transaction have worked hard to deliver a tailored solution for Choice which meets all of the objectives set at the start of the process.”
Richard Lusty, Relationship Director at Ulster Bank, said: “Ulster Bank is proud to be the preferred banking partner to support this transaction. Supporting the social housing sector in Northern Ireland is aligned with our purpose of helping people, families and businesses to thrive.
Claire McKeown, Associate Director at Ulster Bank added: “The structure of the facility demonstrates the strength of the relationship that Ulster Bank has with Choice and Savills, alongside the wider benefits of being part of NatWest Group. Working in partnership with our NatWest Markets colleagues, we were able to provide Choice with a tailored and flexible solution that helps to achieve their goals and ambitions, alongside managing interest rate risk in more challenging economic times.”
Dominic Brindley, Director in Specialist Financing and Risk Solutions at NatWest said: “We are delighted to have been able to support Choice with this strategically important transaction working closely with both the Savills and Choice teams to structure a hedging solution that provided Choice with the desired level of flexibility and interest rate protection. We are seeing an increasing number of customers in the sector look at loan linked ISDA based hedging solutions given the increased flexibility that this offers.”