SYHA found non-compliant after ‘loss of control’ leads to lending agreement breaches

South Yorkshire Housing Association (SYHA) has been found to be non-compliant with a regulatory standard after breaching lending agreements due to business planning and control failures.

The Regulator of Social Housing (RSH) has judged the 5,700-home association non-compliant with its governance and viability standard, awarding it a G3 and V3 rating for governance and viability respectively, meaning it is breaching the standard and needs to take action.

In a regulatory judgement published this morning, RSH said SYHA has “not been managing its affairs with an appropriate degree of skill, diligence, prudence and foresight.”

It said financial governance weaknesses led to it miscalculating its compliance with loan covenants over a number of years.

This led to a historic covenant breach, with a further forecast breach relating to 2022/23. RSH said it is also exposed to wider loan agreement breaches due to cross-default clauses with other funders.

RSH said: “It is evident that financial processes and controls have been inadequate, leading to incorrect financial information being shared with its funders, board and the regulator.”

RSH said SYHA has failed to ensure it has a “robust framework to ensure the accurate monitoring, reporting and compliance of funders’ covenants nor an effective system to accurately report delivery of its financial plan.”

The regulator said that while there is no immediate concern over SYHA’s immediate liquidity or solvency the provider’s ‘loss of control’ has exposed it to serious implications that may impact its future viability.

RSH said: “SYHA’s business plan, even without the potential implications of the loan covenant issues considered, demonstrates limited financial capacity in the short to medium term.

“It remains reliant on uncertain cashflows, such as fixed asset disposals, to support its financial performance and future covenant compliance. Furthermore, SYHA’s mitigation strategies are limited in being able to deal with plausible stresses.”

RSH launched an investigation after a SYHA self-referral in April.

Responding to the judgement, Larry Gold, chief executive of SYHA, said that “extensive plans” are already underway to improve the organisation’s governance and viability.

He said: “These will continue to be our number one priority. Our commitment to working with the regulator to strengthen the organisation’s financial and governance capacity and capability, and to make the changes required to ensure our long-term viability, is recognised in the regulatory judgement.”

He said the judgement was not a reflection on the quality of homes SYHA provides and said it was working hard to ensure there was no adverse impact on residents.