Derwent Living – downgrade

The Homes and Communities Agency (HCA) downgraded 8,785-home Derwent Living to a G3 and V3  which means it is not compliant with regulatory standards.

According to Inside Housing:

“The regulator said it was not convinced of Derwent’s ability to manage its financial exposures, particularly its mark-to-market exposures (see box). According to the landlord’s 2015 accounts, its liability on interest rate swaps – taken out to hedge against rising interest rates on variable rate debt – was £41.6m, around 8% of its overall liability.

The regulator said it was not sure whether the housing association’s “risk management strategy is sufficiently developed”.

“Derwent’s understanding of its assets and liabilities has not been sufficiently developed to identify and manage the risk flows associated with the group’s activities and financial arrangements,” it said. There is a lack of transparency in the intra-group relationships.”

The HCA disclosed an incident in June in which Derwent uncovered a “potentially material issue relating to continued compliance with the terms of on-lending arrangements” when it was finalising its year-end accounts for December 2015.

It criticised Derwent for not picking up on the issue previously, and said the landlord had been reliant on third parties to sort the problem out.

“It is working to secure additional funding but in the absence of this, access to liquidity in the short to medium-term is predicated on timely completion of asset sales… which is neither a satisfactory nor sustainable solution,” the HCA said.

Peter McCormack, chief executive of Derwent, said: “The board is developing an action plan with a view to regaining compliant status as quickly as possible.”