South Somerset Homes manages its exposure to low inflation
The challenge
- Reduce exposure to the risk of low inflation.
- Reduce the proportion of fixed-rate hedging in the portfolio.
- Improve long-term cashflow certainty without compromising short-term covenant compliance.
South Somerset Homes (SSH) is a registered social landlord (RSL) operating in the South West of England. After refinancing its capital market debt in 2004, SSH carried out a series of simulations and stress tests against its business plan. “The conclusion we came to was that a high level of fixed-rate borrowing (albeit at a competitive rate) – a legacy of the refinancing – left us over-exposed to the effects of a sustained period of low inflation,” says SSH finance director, Caroline Moore.
The solution
“We put together a package for SSH and its advisors which allowed it to swap part of the interest payments on its fixed-rate loans into inflation-linked repayments. This Inflation Differential Swap helps to protect SSH’s long-term cashflow against periods of low inflation,” says Lis Duthie of Lloyds TSB Financial Markets.
“Lloyds TSB’s offer was very competitive,” says Caroline. “When they came back with the required arrangement perfectly tailored to our specific needs, at such a keen price, we and the Board here were thrilled. For RSLs in a similar position, I would recommend speaking to Lloyds TSB. We’ve found their flexibility, pricing and levels of service to be excellent.”
Why Lloyds TSB Corporate Markets?
- Bespoke solution tailored to meet specific needs.
- Responsive, straightforward process.
- Highly competitive offer.
- Full range of hedging solutions.
To find out how we could help your business, contact us.