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Community Sector Banking Bringing Housing Together Forum 2011 Hobart PowerPoint PPT Presentation


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Community Sector Banking Bringing Housing Together Forum 2011 Hobart Rebecca Lucas, Business Manager, SA. Who is Community Sector Banking?. The first banking service in Australia dedicated to the community sector

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Community sector banking bringing housing together forum 2011 hobart

Community Sector Banking

Bringing Housing Together Forum 2011

Hobart

Rebecca Lucas, Business Manager, SA


Who is community sector banking

Who is Community Sector Banking?

  • The first banking service in Australia dedicated to the community sector

  • Our mission is to enhance the capacity and capability of the community sector to deliver improved and increased social outcomes

  • Affordable / social housing a key sector

  • Financier to a number of leading CHP’s

real solutions. real impact.


Today s discussion

today's discussion

  • General borrowing considerations

  • Construction finance risks

  • Key lending criteria

  • General terms and conditions

real solutions. real impact.


General borrowing considerations

general borrowing considerations

  • Construction (development) finance / Post Construction (investment) finance - term debt

  • Management experience and corporate governance - skill base of the Board

  • Strategic plan re. expansion – capability to resource with appropriate infrastructure

  • Use of external consultants

  • Due diligence process – quality of forecasts/budgets, reporting

  • Quality of security (design) / bank’s capacity to realise on security

  • Structure of Security – SPV’s, use of security trustee

real solutions. real impact.


Construction finance risks

Equity

Tenant

Demand

Building

Contract

Project

Design/Management

Builder

RISKS

Valuation

Cost Overruns

Environmental

construction finance risks

real solutions. real impact.


Key lending criteria s erviceability post construction

key lending criteria serviceability post construction

  • Critical - cash flow modelling, assumptions & sensitivity analysis

  • Each project should be able to ‘stand alone’ in terms of serviceability

  • Closely consider and monitor tenant mix (affordable v social), arrears & vacancies, and expenses

  • Loan amount determined on serviceability over LVR (cash flow over security values). The LVR will be a result of the level of debt sustainable and serviceable by the project’s recurring cash flow

    • Interest Cover Ratio ≥ 1.5 times

real solutions. real impact.


Key lending criteria security

key lending criteria security

  • Security sought:

    • First ranking real mortgages over properties

    • Debenture charge over company/applicable assets (cash flows)

    • Financiers development deed (Builder/Bank/Applicant)

    • Tripartite agreement / priority agreement with government (if applicable whereby gov. has encumbered the properties)

  • Financiers enforcement capabilities

real solutions. real impact.


Key lending criteria security structure

key lending criteria security structure

Consider establishing a security trust to hold assets on behalf of lenders

Provides flexibility as it allows new lenders to participate as business/funding requirements increase

Typically one bank will be the ‘Facility Agent’ to manage the total loan facilities and all lenders

real solutions. real impact.


Key lending criteria general

key lending criteria general

  • Indicative Term

    • Construction: 12-18 months

    • Post construction (investment) : Guide - facility reviewed every 3 years with a maximum overall term of 25years (asset life) subject to satisfactory reviews (note: includes construction term)

  • Repayment

    • Interest only (Interest capitalised during construction)

    • Interest only with principle reductions from time to time

    • Principle and interest amortisation

    • NRAS : Indicatively for a term > 10 years. Debt to be reduced to a level by year 10 where the cash flow (less NRAS) can service the residual debt within the remaining term

real solutions. real impact.


General terms and conditions precedent

general terms and conditions precedent

  • Normal construction conditions

  • Detailed review (including assumptions) of cash flows, with possible use external independent party

  • Confirmation of accreditation under relevant Housing Act

  • Provision and vetting of Government funding agreements / NRAS approvals

  • Confirmation that borrower has resources and expertise necessary to manage the development

  • Other documents required from the borrower i.e. tenancy agreements, management agreements, hedging policy etc

real solutions. real impact.


General terms and conditions subsequent

general terms and conditions subsequent

  • Normal construction monitoring conditions

  • Any breaches of Government regulation or funding arrangements to be notified within 7 days

  • Sinking fund (maintenance)

  • Monitoring of tenancy mix/profile to ensure cash flow integrity/serviceability

  • Provision of annual /semi annual accounts and yearly budgets

  • Financial covenant compliance reporting

real solutions. real impact.


Key points

key points

Strong management & board

Think about establishing a flexible security structure (trust) to facilitate growth and ease of additional lenders

Establish good financial reporting mechanisms and models – ease of producing information banks want will cut assessment time

real solutions. real impact.


Questions thank you

Questions?Thank you

real solutions. real impact.


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