Sovereign is second to buy back own bonds

The Berkshire-based registered social landlord is only the second RSL to buy back bonds issued on its behalf by the Housing Finance Corporation.

Devon & Cornwall Housing Association was the first (HT 30 January, page 14) and jointly developed the Sovereign deal.

Such deals are complicated because the association and its advisers must track down all the bond holders and buy their bonds back at a suitably agreed price.

Sovereign's deal will see it change to a variable rate loan with Royal Bank of Scotland.

The RSL estimates it will save more than £200,000 in interest payments by switching to the new loan at the current low interest rates. The change will also help balance the mixture of fixed and floating interest rate borrowing in its portfolio.

The RBS facility covers the £10m cost of cancelling the bonds and provides £40m to fund the RSL's development for the next two years. It already had a £25m facility with the same bank.

The loan backs up the £38.5m it will get to build 1450 homes over the next two years as one of the Housing Corporation's "preferred partners" – the 71 RSLs for whom a large chunk of the corporation's development grant will be ringfenced.

Sovereign's finance director Martin Huckerby said: "It's about being able to manage the interest rates in future.

"We are redoing the whole of our borrowing strategy. We have a high proportion of fixed-rate or hedged deals. We are reviewing the make-up of that portfolio."