1. THFC The Housing Finance Corporation National Housing Federation Treasury Management Conference Guaranteed Debt for Affordable Housing Why, What and How? Fenella Edge Treasurer THFC October 2014

2. THFC The Housing Finance Corporation Why guarantee? The need for an off balance sheet solution

3. THFC The Housing Finance Corporation Housing Guarantee Schemes UK-wide policy to –stimulate economic activity –facilitate development of additional housing supply £10bn for affordable and private rented sector (PRS) –£3.5bn affordable –£3.5bn PRS –£3.0bn TBD

4. THFC The Housing Finance Corporation Affordable Housing Finance (AHF) AHF awarded the Licence to run the AHGS until March 2016 Subsidiary of THFC Managed by THFC’s existing team plus additional resource Over 70 years combined experience in social housing lending

5. THFC The Housing Finance Corporation HA Funding Costs AHF - UK ‘Full Faith’ Guarantee Housing Association Bond/PP Funding Rating:AAA/Aa1AA-/Aa3 → BBB+/Baa1 Cost of Finance:Gilts + 0.37%Gilts + 1.00-1.50% Potential saving in today’s money per £10m borrowed: £1.2mill - £2.1mill HA cost of funds in bond markets since 2007 – spread over Gilts Guaranteed debt cost of funds – spread over Gilts

6. THFC The Housing Finance Corporation Affordable Guarantee Scheme - Eligibility A large variety of schemes… grant funded schemes in programmes post 2011-15 programme nil-grant funded schemes s106 schemes Local Authority supported …and an increased window for construction approval by March 2016, drawdown by Sep 2016 start on site by September 2017 no PC timescale requirement most schemes starting post application eligible

7. THFC The Housing Finance Corporation What is the Product? £3.5Bn of Guarantee capacity £500mill EIB long term debt facility (already allocated) Long dated fixed rate bond AAA rated 2042 maturity £208million issued Medium term FRN AAA rated Estimated initial issue £150million Flexibility to mitigate cost of carry through: Regular taps Retained bonds

8. THFC The Housing Finance Corporation Affordable Guarantee Scheme Security Criteria Secured on existing assets Security portfolio to provide: Asset cover – 115% EUV-SH Net annual income cover – 100% Min 75% general needs, flexibility in remaining 25% 5 yearly revaluation Withdrawal of security without substitution if EUV over 150%, otherwise substitution required No MVT alternative, but most HAs have properties limited to EUV valuation

9. THFC The Housing Finance Corporation Affordable Guarantee Scheme – other features No corporate covenants Debt service reserve – 12 months’ of interest Start on site after date of application and within 12 months of drawdown Fees Arrangement fee for bond funded loans - 0.35% Annual fee – 0.10% indexed No State Aid Fee

10. THFC The Housing Finance Corporation Affordable Guarantee Scheme – Application Process Application form listing schemes to be funded Credit due diligence undertaken by AHF and reviewed by DCLG Process from start to finish c. 3 months Key information requirements include: Latest Business Plan – including funding being applied for Financial Forecast Return – matching the Business Plan AHF Key Financial Data Form Latest Management Accounts Business cash generation Following credit approval, progress to loan documentation NB Documentation approved by DCLG and relatively standardised

11. THFC The Housing Finance Corporation What does Success look like? LendingFunding Approvals to date: 21 borrowers Total debt eligibility £900million Includes Welsh and Scottish borrowers EIB long dated debt facility £500million - signed Dec 2013 Fully allocated Available to draw to Sept 2015 Drawdowns to date 13 borrowers Total drawn debt £257million Long dated fixed rate bond £208 million issued May 2014 Tap issues planned for Q4 2014 and Q1 2015 Total in issue by March 2015 – projected £500million Pipeline of applications in process Further 16 borrowers Total debt eligibility c.£600million Medium term FRN Initial issue planned for Q1 2014 Estimated size £150+million Total estimated guaranteed debt issued and on-lent by March 2016 – projected £2-2.5billion

12. THFC The Housing Finance Corporation Conclusions A price proposition: sets a new benchmark for low cost, long term finance Flexible: EIB FRN Taps and retained bonds Proven, oven ready! This will be the successful Guarantee programme Questions?