Swan Housing Capital Delay to publication of audited accounts (2390C)

TIDM61HI

RNS Number : 2390C

Swan Housing Capital

07 October 2022

Delay to publication of audited accounts

Swan Housing Capital plc

7 October 2022

DISCLAIMER

Please note that the information contained in this notice may be addressed to and/or targeted at persons who are residents of particular countries (specified in the Prospectus dated 3 March 2015 relating to the issue by Swan Housing Capital plc of GBP250,000,000 3.625 per cent. Secured Bonds due 2048 (the Prospectus ) ) only and is not intended for use and should not be relied upon by any person outside these countries and/or to whom the offer contained in the Prospectus is not addressed. Prior to relying on the information contained in this notice you must ascertain from the Prospectus whether or not you are part of the intended addressees of the information contained herein.

Your right to access this service is conditional upon complying with the above requirement.

This information in this notice is not intended to be a complete and up to date description of all of the activities and risks within the Swan Group - not least because the current proposal is that the merger with Sanctuary will result in the mitigation of those risks; and that matters remain fluid.

Swan Housing Capital plc - GBP250,000,000 3.625 per cent. Secured Bonds due 2048

On 5 March 2015, Swan Housing Capital plc (the Issuer) issued GBP250,000,000 3.625 per cent. Secured Bonds due 2048 (the Bonds) and on-lent the proceeds of the Bonds to Swan Housing Association Limited (Swan HA) pursuant to a bond loan agreement dated 5 March 2015 (as amended or supplemented from time to time, the Bond Loan Agreement).

Further to the Issuer's announcement on 27 September 2022 in connection with the delay in publishing the group's consolidated audited financial statements for the financial year ended 31 March 2022 (the 2022 Financial Statements) and providing them to certain parties under the Bond Loan Agreement and under the Bonds, the Issuer now announces that there continues to be a delay in publishing the consolidated audited financial statements of Swan HA and a delay to publishing the audited accounts of the Issuer.

The Issuer has provided details to M&G Trustee Company Limited (the Bond Trustee) as to the delay and now sets out a summary of those details here.

Background & context

-- Swan Housing Group comprises Swan Housing Association, a Registered Provider and Community Benefit Society with charitable status, and its subsidiaries.

-- Swan Housing Group has encountered significant challenges during the year in its commercial operations, including cost overruns and delays to works leading to slower sales. As a result, the amount of debt in Swan HA has increased, as has the level of on-lending by Swan HA to these subsidiaries.

-- It was announced on 10 December 2021 that Swan HA would pursue a merger with Orbit Group, with Swan HA joining the Orbit group as a subsidiary. In January 2022, Orbit advanced a secured loan of GBP25m, which was subsequently increased to GBP40m in March 2022.

-- During this process, Grant Thornton LLP was commissioned to carry out the year end audit of the Swan Group. On 23 September 2022, Grant Thornton highlighted it currently had insufficient assurance on the level of impairment included in the 2021/22 accounts of GBP178.4 million in respect of certain development schemes. In the absence of further evidence it would therefore issue a disclaimer audit opinion but is prepared to conclude that Swan HA remains a "going concern" on the basis of a merger. At this point in time discussions with the auditors are ongoing regarding the timing of the signing of the audited accounts and the wording within the auditor's report.

-- Following lengthy discussions and a detailed due diligence process, it was confirmed in late September 2022 that the merger between Swan and Orbit would not proceed.

-- Swan HA and Sanctuary Housing Association have now entered into detailed discussions regarding a potential transaction which, if consummated, would involve Swan HA becoming a subsidiary of Sanctuary HA.

-- Swan HA is also in discussions with Sanctuary to refinance the Orbit loan with a loan from Sanctuary which, if agreed, would replicate the Orbit facility and if required add to it.

-- Swan's management and board are engaging closely with the Housing Regulator and its auditors to keep them appraised of the status of the potential merger discussions with Sanctuary. Swan and Sanctuary are engaging with Swan's auditors to ensure that the accounts will be signed off if the Sanctuary merger goes ahead.

Liquidity & going-concern issues

-- Swan HA presently holds cash of GBP24.3m. On current (unaudited) projections Swan HA's cashflow shows the GBP24.3m being sufficient to fund the operation of subsidiaries until early December, subject to agreement of on-lending thresholds with its bank lenders.

-- In the circumstances, Swan group has appointed advisors to provide the boards with weekly assurance about whether it is appropriate to expend these sums.

Position with key funders

-- Swan HA is currently in dialogue with its key bank lenders with a view to maintaining an effective "standstill" position in relation to anticipated breaches of its loan covenants, including the late filing of audited accounts.

-- Each of Swan HA and the Issuer is also keeping the Bond Trustee appraised of the situation and will continue to keep it appraised of any further developments. Other than as referred to in the RNS announcement dated 27 September 2022, the Bond Trustee has not been required and has not granted, at this stage, any waiver or consent to any potential defaults or defaults. The Bond Trustee expresses no opinion as to the contents of this notice or its impact on the Bonds and/or the Bondholders, other than to note that they should seek their own financial and legal advice.

-- The Swan Group will now require sufficient time for Sanctuary to complete its due diligence process, and, if satisfactory agreement is reached, to complete a transaction.

Sanctuary: rationale and timeline

-- Sanctuary provides housing and care in England and Scotland to more than 250,000 people, owning and managing more than 105,000 homes. It has ratings of A (stable) with Standard & Poor's and A2 (stable) with Moody's. Sanctuary has a successful history of distressed acquisitions.

-- The proposed transaction under discussion would involve Swan HA becoming a subsidiary of Sanctuary Housing Association and would seek to achieve the following objectives:

o To safeguard services to tenants and communities.

o To ensure the financial solvency of Swan.

o To establish lender confidence in the new enlarged Group.

o To satisfy the Housing Regulator that the new enlarged Group is rated at least G1 and V2.

-- Subject to the satisfactory completion of Sanctuary's due diligence, and the agreement of transaction terms, both parties would seek to complete the acquisition by 30 November 2022.

For further information or to arrange a meeting with Swan's management, please contact:

Phil Jenkins

Centrus Advisors

[e-mail]

07788209354

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October 07, 2022 12:01 ET (16:01 GMT)