There are eight combined time-series charts, designed to
provide comparisons of levels and trends of selected key variables over time.
They extend the principle behind the single charts; that it is easier to assimilate
35-year data in graphical rather than tabular format. If this argument holds
then these combined charts should need very little explanation, since the issues
should be self evident.
| This chart will show very graphically | |
| a) any convergence or divergence of social housing
income and expenditure b) the amount of SBIT cover for interest c) the amount of surplus (or deficit) over time. |
|
| Trends in Balance Sheet | |
| Compares; | Total net assets Social Housing Grant (SHG) Net total debt Total capital and reserves |
| This chart will highlight, in particular | |
| a) the relationship of SHG to net assets b) trends in net debt versus reserves |
|
Balance Sheet Structure
Similar to the previous chart this shows a standardised balance sheet
with a "stacked" analysis of the main liabilities as a percentage
of fixed assets:
| Cash, stocks and debtors (which is and shown
below the line as a negative but which tends to be negligible) Total debt Creditors (which trends to be negligible) Total capital and reserves SHG |
This combined chart will clearly illustrate any changing pattern of funding.
Expenditure Components of Operating Cash Flow
This is a graphical representation of key cash flow components to facilitate
assessment of the sustainability of the pattern of cash flows.
| Compares; | Operating cash flow Cash flow after interest paid Cash flow after capital expenditure Cash flow after debt repayment |
Irrespective of any particular loan covenants, cash flow
after interest paid should generally be positive. If it is zero it means that
100% of capital expenditure, after grants, must be debt financed, and all maturing
debt must be re-financed.
Major Cash Inflows and Outflows
| This complements the previous chart and compares the main inflows; | |
| Operating cash flow before debt service Net new borrowing |
|
| with the main outflows: | |
| Net interest paid Net capital expenditure Scheduled loan repayments |
|
The chart will particularly highlight convergence or divergence among the main
inflows or the main outflows, also any volatility in capital expenditure,
loan repayment or new borrowing in particularly.
| Profit and Cash Cover Ratios | |
| Compares different measures of interest cover; | |
| Net interest cover Cash interest cover Cash debt service cover |
|
A “marker” line of 1-0 is given to facilitate evaluation. Irrespective
of specific loan covenants, this is aimed at assessing the adequacy of the
margin between interest payable and the means to pay that interest, given likely
volatility in interest payable, surplus or cash flow. Net interest cover is
the Income and Expenditure cover (SBIT/Net interest) whereas the other two
are taken directly from the Cash Flow Analysis table. Cash interest cover is
defined as operating cash flow before debt service divided by net cash interest
paid.
Cash debt service cover is defined as the same cash flow as above, but divided
by net interest and scheduled debt repayments.
Cash interest cover will often be better than Income and Expenditure interest
cover because of adding back depreciation and net working capital (positives)
but it may be worse because of adding back capitalised repairs and maintenance
and interest (negatives). The cash debt service cover ratio will always be
lower than the cash interest cover ratio.
| Debt Multiples | |
| Compares; | Net debt/EBITDA Total Net debt per unit |
Aimed at assessing, indirectly, the ability ultimately to
repay debt from cash flow. More generally it summarises the manageability of
the debt burden since full repayment from cash flow is seldom required or possible,
given the strong asset backing of most housing associations.
Debt probably ought not to exceed 12.5 times EBITDA on this "relative"
measure of debt capacity. Debt per unit has to be assessed in the context of
local social housing prices.
| Compares; | Net debt % Net assets (leverage) Net debt % EUV(SH) asset value Net debt % NPV (30 constant) Net debt % NPV (30 years plus terminal value (TV)) |
Aimed at assessing the level of debt against different definitions of
"asset value," from balance sheet accounting value, via estimated
EUV(SH) based on rent multiples to net present value of discounted cash flows,
either for the next 30 years or to infinity.
Debt ideally should be less than 100% of all these, except perhaps for the
NPV (30 constant) in earlier years. A prudent maximum limit might generally
be in the region of 70% ("loan to value").
| Compares; | LLCR (30 declining) LLCR (30 constant) HALCR |
Aimed at comparing the net present value of forecast cash
flows, over different periods, with the level of outstanding debt. These comparisons
are expressed in terms of the 3 multi-period cover ratios.
LLCR (30 reducing) includes the value of cash flows for the remainder of the
30 year forecast period at any one time.
LLCR (30 constant always includes the value of the next 30 years’
cash flows.
The HALCR includes the value of cash flows in perpetuity.
| Compares; | Total debt outstanding NPV of 30 years plus TV NPV of 30 years plus annuity NPV of 30 years (reducing) |
Aimed at comparing the level of debt with the net present value of forecast cash flows over the different periods, in absolute terms.