Ashford Borough Council in Kent and the Chrysalis consortium have closed the Stanhope social housing PFI - making Ashford the first shire district authority to sign a PFI deal to regenerate a housing estate

The Chrysalis consortium includes as equity partners:

• Gleeson Group - housing and regeneration developers
• Nationwide
• Moat - registered social landlords

Chrysalis will undertake a massive regeneration project on Stanhope over the next five years which will then extend by a further 30 years to include maintenance of the newly built or refurbished assets.

The project combines a Housing Revenue Account (HRA) PFI contract - covering the demolition, reconstruction and maintenance of the social housing - with a commercial deal to build private housing for an open market sale.

The first phase of the PFI contract covers the staged demolition of 410 HRA flats over nine sites. The consortium will maintain the flats until demolition.

As the second part of the PFI, Chrysalis will build, operate and maintain 330 units of HRA housing over a five year period.

The commercial element involves the purchase of the land at the nine sites which will be passed on to Gleeson Group-subsidiary Gleeson Homes for redevelopment. The housebuilder will develop 144 homes to be sold to the open market and 90 flats for immediate rent and Homebuy (formerly known as Shared Ownership).

The consortium will also buy a tenth site containing a shopping centre which - as part of the commercial agreement - it will also be redeveloped into a modern commercial centre.

UK social housing, HRA and non-HRA

A Housing Revenue Account (HRA) is a landlord account which details income and expenditure on a council's housing stock. Every local authority with 50 or more council houses is required to keep an HRA.

A HRA housing deal would mean in essence that ownership of the housing assets would return to the council - with the council paying back the private sector investment in the deal through the unitary charge over the entire concession.

Councils also use housing revenue accounts which are the opposite of non-HRA and do not let costs impact on tax as they are ring fenced. Both types of housing can be PFI.

Financing

The estimated contract value of the Stanhope regeneration contract to the consortium over 30 years is £200 million,.

The capital cost of construction for the PFI elements of the scheme alone come to around £33.35 million (US$66.8m). Nationwide - in addition to providing equity as a member of the SPV, was MLA on the deal and arranged a senior debt of £30 million (US$60m) with a margin of LIBOR+60-80bp.

The balance of the funding was provided by an equity investment of £3.5 million (US$6.6m) giving the scheme a PFI-standard 90: 10 debt: equity ratio.

Conclusion

The Ashford deal has proved an example to skeptics of PFI procurement for social housing.

The first attempt to procure the project with the then sole bidder - the United House Solutions, Hyde Housing and HBOS Partners for Improvement  consortium- saw negotiations collapse in early 2005.

The authorities started afresh, returning the deal to the marketplace to find multiple bidders and in turn a healthy competitive process resulting in the bidder that fit the deal. The deal moved from preferred bidder to close in nine months.

The growth of the housing PFI market as well as the standardisation of housing PFI paperwork can be seen as factors behind this change.

PFI is still seen as a relatively uncommon route for social housing ­ with just 16 councils so far signed up to PFI agreements .

Housing market experts will generally agree that there is currently evidence demonstrating an increased interest which might potentially lead to growth of this market.

Pinsent Masons acted as legal adviser to the Sponsor with Ernst & Young acting as the Sponsor's financial adviser.

The legal adviser to banks was DLA Piper. The legal adviser to government was Trowers & Hamlins.

Robson Rhodes acted as the government's financial adviser.

The project at a glance