Affordable Homes Guarantee Scheme 2020 (AHGS20)

Tender description

The Department for Levelling Up, Housing and Communities (the "Department") is publishing this voluntary transparency notice to alert economic operators of its intention to vary a concession arrangement entered into with Saltaire Housing Limited (the "Concessionaire") on 16 October 2020 following a period of 10 days from the date of publication of this notice. The Department considers that the relevant modifications (as described below) are justified on the basis that they are in compliance with the Concession Contract Regulations 2016 (the "CCRs") pursuant to Regulation 43(1)(a) and 43(1)(b) of the CCRs. By way of background, on 6 November 2019, the Department published a contract notice to appoint a concessionaire to deliver the Affordable Homes Guarantee Scheme ("AHGS20"). The contract notice explained that the concessionaire was required to raise £3bn of capital from investors (with a potential £3bn top up at the Department's sole discretion) and on-lend to registered housing providers ("RPs") and manage the resulting loan portfolio over the lifetime of the borrowings (which shall continue to be a maximum of 30 years from the date the relevant loan is advanced). The estimated total value of the concession contract was stated to be in the range of £80m-£125m. The purpose of the AHGS20 was to enable the Secretary of State for Housing, Communities and Local Government to provide guarantees covering scheduled interest and scheduled principal payable to investors by the capital-raising special purpose vehicle established by the successful tenderer and the corresponding loans made to RPs under the scheme. The scheme seeks to maximise the benefit of the guarantee, by reducing RPs' cost of borrowing, thereby enabling them to deliver more new affordable homes. Management of the concession agreement would be delegated to Homes England. Since the award of the above concession, a more hostile macro-economic environment and a growing and urgent need for RPs to address decarbonisation and decency issues have resulted in RPs deprioritising delivery of new affordable homes in favour of investment in existing assets. By allowing lower-cost scheme funding to be split between new development (with a minimum of 50% of each loan to be used for this purpose) and decarbonisation and remediation, RPs are incentivised to carry on developing while simultaneously addressing issues with their existing stock, rather than pausing or significantly cutting back on development. The modifications envisaged to the concession agreement are therefore necessary to achieve the scheme's primary objective of providing lower cost debt to enable RPs to develop more homes than they would otherwise have done in circumstances where for both economic and technical reasons as described further below it is not possible to change the concessionaire in order to facilitate the Tranche B lending. Lot 1: Since the award of the concession, a more hostile macro-economic environment and a growing and urgent need for RPs to address decarbonisation and decency issues resulted in RPs deprioritising delivery of new affordable homes in favour of investment in existing assets. By allowing lower-cost scheme funding to be split between new development (with a minimum of 50% of each loan to be used for this purpose) and decarbonisation and remediation, RPs are now incentivised to carry on developing while simultaneously addressing issues with their existing stock, rather than pausing or significantly cutting back on development. The modifications to the concession agreement were therefore necessary to achieve the scheme's primary objective of providing lower cost debt to enable RPs to develop more homes than they would otherwise have done in circumstances where for both economic and technical reasons as described further below it is not possible to change the concessionaire in order to facilitate the Tranche B lending. The Department required changes to be made to the Scheme Rules so as to broaden the range of delivery undertakings which may be eligible for funding (referred to as "Scheme Expansion"), to include improvements relating to energy efficiency and housing decency as well as the construction of new-build and additional affordable housing. Those improvements will be facilitated via 'Tranche B' loans (while an amount equal to 'Tranche A' loans must continue to be spent on the delivery of new affordable housing). Changes were also made to the concession agreement to clarify or in some cases modify the current rules of the scheme, to ensure it remains accessible to a broad range of RPs whose business plans incorporate a degree of new development (referred to as "Scheme Acceleration"). As part of the Scheme Expansion and Scheme Acceleration, consequential changes have been made to the concession agreement and programme documentation (as more particularly described in section VII.2.1 below). This included an increase to the Cumulative Guarantee Amount to £6bn and an extension to the application window to April 2026. In respect of the increase to the Cumulative Guarantee Amount and the extension of the guarantee application period, the concession agreement contained provisions contemplating these particular modifications (clauses 3.1 and 7.2 respectively). To that end, the Department's view was that such modifications are justified on the basis that they are compliant with the requirements of Regulation 43(1)(a) of the CCRs. In respect of the remaining modifications referred to elsewhere within this notice, the Department viewed that such changes are justified on the basis that they are compliant with the requirements of Regulation 43(1)(b) of the CCRs for the reasons set out below.