Sanctuary ‘to rein in development’ following Swan merger

Housing association Sanctuary is likely to scale back its development programme following its impending merger with troubled housing provider Swan, according to a ratings agency assessment.

A research note by S&P Global issued yesterday said that 106,000-home association Sanctuary, which has previously set out plans to build 15,000 homes between 2020 and 2028, “would likely take measures to scale down its own development program to accommodate the business combination and mitigate other sector risks”.

S&P said it based this conclusion on its own limited information regarding the combined businesses’ plans at this point, however a spokesperson for the association itself said it remained committed to development.

However, the ratings agency said the merger with Essex-based Swan, which has in the last week revealed it has breached lending covenants and only has enough cash to last until December, would not have an immediate impact effect on Sanctuary’s creditworthiness, despite “some downside risks”.

Sanctuary announced on Sept 29 that it had entered talks to merge with Swan, swiftly after the breakdown of negotiations between Swan and Orbit – who had previously been set to merge – was revealed. The merger between Sanctuary and Swan is expected to go through on November 30.

See also Regulator warns economic turmoil likely to hit housing association development

See also: How do we boost housing association development?

See also: What are housebuilding’s prospects in the wake of the mini-budget?

S&P said: “We anticipate Sanctuary’s large asset base, relative to Swan’s, could help balance the heightened financial risks that Swan is facing at this point.”

Sanctuary built 768 homes in the 2021/22 financial year, an increase on the 620 built the year before, and had more than 5,000 homes in development at the end of the year in March 2022. Sanctuary is well known in the housing association sector for merging with failing housing association Cosmopolitan in similar circumstances in 2013.

Swan was plunged into turmoil last December when it was found to have breached the Regulator of Social Housing’s (RSH) governance and financial viability standard following a “material deterioration” in Swan’s finances which came after losing control of development programme costs.

Despite managing only 11,600 homes, Swan had previously said it had a development pipeline of 8,000 homes through its for-profit modern methods of construction developer Swan New Homes Ltd, which trades as Nu Living.

The firm created a modular housing factory in Basildon, and announced plans for a second facility to take its build capacity to 1,000-homes a-year.

S&P’s note added: “We also consider that Sanctuary has a solid track record of absorbing housing associations in financial distress. We expect that after a potential business combination, the group would likely scale back on Swan’s existing development schemes, which have been the main factor resulting in the difficulties that it faces at present.”

A spokesperson for Sanctuary said: “Discussions regarding a possible business combination are ongoing and will be subject to the approval of both Boards. While we continually review our plans to take into account operational and structural changes in the Group, we remain committed to developing much-needed new affordable homes.”