Affordable Homes Guarantee Scheme – interest cover covenant on cost effective loans refreshed to remove capitalised repairs

13 July 2022

Following feedback from members, and meetings with the lending community and the government about the issue, the NHF is delighted that the government has agreed to allow Earnings Before Interest, Tax, Depreciation, Amortisation (EBITDA) only covenants for the Affordable Homes Guarantee Scheme (AHGS). The NHF would like to thank Ara Venn, who manage the scheme on behalf of the government, for their work to resolve this issue which will enable many more housing associations to access government backed low cost debt.

The AHGS is a £3bn government-backed lending scheme which aims to support the delivery of new affordable homes by private registered providers. It makes long term, cost effective loans to borrowers which are funded via the issuance of bonds in the capital markets. The bonds issued to fund loans under the AHGS benefit from a guarantee from the government, which attracts competitively priced capital from investors, the benefit of which is passed on to borrowers.

The scheme has so far funded around £350m, with 30 year loans to five housing associations, and more loans are progressing through the pipeline. The latest bond series under the programme started in May 2022, issued at G+63bps with a 2052 maturity.

ARA Venn listened to feedback received from the social housing sector throughout their engagement on issues around the AHGS, in particular the challenges the sector faces in relation to meeting net zero targets and the associated uncertainty around the profile of future capital expenditure. As a result, the government has approved a change under the scheme to offer an interest cover covenant based on EBITDA only (no capitalised repairs included), tested annually against a 1.20x minimum requirement. This new offering, which replaces the previous rolling-three-year EBITDA-MRI test at 1.0x and annual EBITDA test at 1.10x, is intended to provide borrowers with a greater degree of flexibility to respond to the fluctuating requirements in capital expenditure throughout the life of their business plans.

For further details please contact Ara Venn or read their overview to find out more about the scheme.

Who to speak to

John Butler, Policy Leader