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North Star Housing Group completes group consolidation and £110m refinance with a competitive all-in coupon

Last month North Star Housing Group (“North Star”) completed its long-held ambition to consolidate the Group’s legal structure and refinanced existing debt facilities via its first private placements.

Based in the North East of England North Star provides affordable housing, invests in its communities and develops new homes across the Tees Valley, North Yorkshire and County Durham. The restructure and refinance will help North Star develop 600 new homes over the next eight years, adding to the current stock of just under 4,000 units owned and managed by the organisation, placing North Star in a strong position for the future.

Three Registered Provider’s (“RP”), Teesdale Housing Association, Darlington Housing Association, and North Star Housing Group (the previous parent RP) have transferred their engagements into Endeavour Housing Association, which has been re-branded North Star Housing Group. The resulting single RP is more financially resilient whilst benefiting from much simplified operations and governance.

The new funding, which was provided by Pension Insurance Corporation and Aberdeen Standard Investments, sees £110m, of which £10m is deferred by 24 months, raised via two notes comprising separate maturities with a weighted average life of c. 36 years, an attractive covenant package and all-in coupon. The £100m spot element of this funding has refinanced North Star’s treasury portfolio concurrent consolidation which sees five banks fully repaid with hedging break costs of c. £6m incurred. The £10m deferred funding, supported by a refreshed £25m RCF, fully funds North Star’s development ambition for at least the next five years.

North Star’s resulting treasury portfolio now has a lower weighted average cost of capital, is simpler to manage, benefits from more favourable covenants, makes better of use security, and increases North Star’s borrowing capacity. The revised treasury structure also benefits from a much enhanced risk profile with the weighted average life of the portfolio increased by 23 years, and the hedged debt ratio increased to c. 100%.

This was a complex transaction completed during a period of significant economic uncertainty that nonetheless managed to take advantage of a window of stability to access low long-term interest rates. This provides North Star with a robust long-term financial platform from which to deliver its vision for the future.

Centrus acted as sole financial advisor to North Star, working with management to develop strategy, supporting implementation, and arranging the private placement. Trowers & Hamlins advised on the legal financing aspects, including the property security elements which will underpin the new financing arrangements and governance elements linked to the consolidation of the group.

James Walder, Executive Director of Finance & Business Support at North Star Housing Group, commented that: The completion of the treasury and group restructure is an important milestone for North Star Housing Group. We have a clear strategy to both invest in our existing assets and develop new homes. Delivering on our treasury strategy in these highly uncertain times has been a real achievement for North Star Housing Group and we look forward to delivering our ambitious plans for the future. We would like to thank Centrus and Trowers & Hamlins for their expertise, advice and support on this project.
John Tattersall, Director at Centrus, commented: North Star Housing Group has had its sights set on a simplified group structure for some time. Delivering this concurrent with a transformative refinancing programme in a period of relative market volatility reflects North Star’s strong financial metrics, clear vision, and unwavering focus on success, but has yielded significant value through a materially de-risked treasury structure and very attractive long term funding costs. This transaction underlines the continued attractions of the capital markets for borrowers, like North Star, with solid financial fundamentals and a strong and counter cyclical profile.
Neil Waller, Partner at Trowers & Hamlins, commented that: We are very pleased to have supported North Star on this transformative project, which has enabled them to simplify their group, streamline their funding structure and rationalise their property security all in one hit. This is a great example of our governance, finance and property security teams working together seamlessly to deliver the various different moving parts simultaneously and in line with the required timetable.
Eugenia Korobova, Debt Origination Manager at Pension Insurance Corporation, commented that: We are delighted to have worked with North Star on this investment, which marks a significant milestone in the Group’s strategy. We were impressed by their approach to risk management and their commitment to the communities they serve. PIC’s funding in North Star, allowing it to develop hundreds of new homes, and in the housing association sector more generally, plays an important part in backing the pensions of our policyholders as we look for secure and reliable income streams over the long-term. The pension risk transfer market is expected to play an increasingly important role funding social housing over the coming decade as we take on more pension liabilities.
Fiona Dickson, Investment Director at Aberdeen Standard Investments, commented that: ASI is delighted to be able to support North Star on this long term funding which will help to secure the delivery of much-needed new affordable homes in the north of England over the coming years. Our clients are attracted to social housing issuers with good quality long term secured cashflows, further supporting their desire to grow investment delivering a positive ESG impact and changing peoples’ lives.

Press release date: 12th August 2020