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Thera Trust

Thera 2018 Bond

Risk factors

All investment and commercial activities carry risk, and investors should consider whether Thera Trust is a suitable investment for them in light of their own personal circumstances.

Supporting the purpose of the Thera Trust should be the primary motivation for investment, and investment in the Trust should be seen as a long-term social investment. An investment in Thera Trust is an investment in a trading business and is not a loan or deposit.

Risks associated with your investment

  • This investment is not suitable for those who require a guaranteed income or ready access to capital.
  • Interest payments are not guaranteed.
  • It may not be possible to find a buyer for your bonds should you wish to sell them.
  • Descriptions of possible returns are illustrative only. There are variable and uncertain factors associated with any project.
  • If the Company is unable to meet its debts and other liabilities, you could lose up to the whole amount held in bonds (but no more than that amount).

Risks associated with the business

  • Investing in Thera Trust Bonds is not the same as depositing money in a bank account as your capital is at risk and you may not get back the full amount that you invested. The Bonds are not covered by the Financial Services Compensation Scheme.
  • The Bonds have a fixed repayment date and investors will have no ability to require Thera to repay their capital before the repayment date (save in the event of default by the Charity). Although the Bonds are transferable and are capable of being sold via the Ethex Bulletin Board, there is no certainty that there will be a buyer for the Bonds, nor what price they will pay. Investors should therefore only invest if they are prepared to wait until the scheduled repayment date on 31 March 2024 to receive their capital.
  • Thera’s ability to repay the Bond on 31 March 2024 or at all is dependent on the continued success of its business model and any refinancing. The Board of Directors are planning to refinance the Bond in 2020 through a combination of retained cash reserves and new bank debt secured against the freehold property portfolio.
  • The Bonds are an unsecured investment and will rank behind the existing bank loans for security purposes. In the event of the Charity entering into a formal insolvency process Bondholders will rank equally with other unsecured creditors of the Charity and behind secured creditors and may not recover their full investment.. However the Bond includes an Interest cover and Asset cover Covenant which seek to limit the Group’s ability to take on additional bank debt.

This list is not necessarily comprehensive and you should read the entire Bond offer document and the terms and conditions to consider other risks which may impact upon your investment.

Risks relating to the bond and charity

1. Past performance is not necessarily a guide to future performance

Events in the past, or experience derived from these, or indeed present facts, beliefs or circumstances, or assumptions derived from any of these, do not predetermine the future. Hopes, aims, targets, plans or intentions contained in this document are no more than that and should not be construed as forecasts.

2. Redemption of Bonds

An investment in Thera will be in the form of Bonds, which are contractually due for repayment at the end of their term on 31 March 2024. It is not certain that Thera will have sufficient funds or access to financial resources available in order to repay the Bonds on their due date.

The Directors are confident of their ability to plan and manage the business and financial resources of the Charity such that they will have a range of options available to them to repay the Bonds on their due date.

3. Unsecured Debt

The Bonds will be an unsecured debt of the Charity and are not guaranteed. In the event of the Charity entering into a formal insolvency process Bondholders will rank equally with other unsecured creditors of the Charity and behind secured creditors and may not recover their full investment.

The Directors consider that Thera is a financially sound business with a proven sustainable business model based on long term income streams. As a result, they consider the risk of an event occurring which would lead to an insolvency of the Charity to be remote.

4. Market Liquidity

The Bonds have a fixed repayment date and investors will have no ability to require the Charity to repay their capital before the repayment date.

Although the Bonds are transferable, they will not be listed on a recognised stock exchange. Bonds can be sold via the Ethex Bulletin Board, if there are willing buyers. There is no guarantee what price a willing buyer might pay.

At the Charity’s discretion, Bonds can be repaid on the death of a Bondholder or in other exceptional circumstances subject to there being sufficient cash available.

5. No Access to the Financial Services Compensation Scheme

Investing in the Bonds is not the same as depositing money in a bank account as capital is at risk and an Investor may not get back the full amount that they invested. The Bonds are not covered by the Financial Services Compensation Scheme – or any compensation scheme – and in the event of the Charity being unable to pay either the capital or interest payments an investor will not be entitled to make a claim against the scheme.

6. Availability of Bank Debt

Any bank which lends to the Charity may choose to withdraw from lending due to changes in their own banking policy or an inability to agree on future lending terms. Were this to happen, it may not be possible to replace the bank loans on such favourable terms, or at all, in which case the development, profitability or solvency of the Charity might be adversely affected.

The Charity attempts to mitigate against such risks by taking out long term loan facilities on sustainable terms. The Charity has a long-standing relationship with its principal lender, Barclays.

7. Loss of Key Management

The Charity is dependent, to a certain extent, upon the contribution of the Directors and the senior management team. If any of them were no longer involved with the Charity in the future, this may have a material negative impact upon the Charity’s financial performance.

In the event of a loss of any member of the current Board of Directors or senior managers in individual companies. The board has an active succession planning process in place and the Directors are confident that Thera would be able to attract the right calibre of individual to join as a replacement.

8. Interest Rates

An increase in interest rates could impact the profits generated by the Charity and its ability to service the debt, or restrict its ability to raise bank debt in future. The Charity’s current borrowing is in the form of long term loans with a combination of fixed and variable interest rates.

9. Pensions

Thera and its subsidiary companies are members of several defined benefit pension schemes. A number of these schemes continue to accrue additional defined benefits in respect of some employees. However, in all but one case, the relevant local authority has agreed either to underwrite any debt on withdrawal liability or higher employer contributions for these schemes. In the remaining instance, Thera holds a creditor on its balance sheet in respect of the estimated debt on withdrawal.

There is a risk that the future cost of pension contributions may increase under legislative change on employer obligations, or following changes in pension scheme valuations which are dependent upon market conditions and the actuarial methods and assumptions used, in addition to other factors outside of their control. Exceptionally in the case of the Local Government Pension Scheme (and in certain circumstances, the NHS Pension Scheme), additional contributions may be payable in limited circumstances where staff are made redundant or receive early access to their retirement benefits on grounds of ill health. A requirement for Thera to make increased pensions contributions under the schemes it participates in may affect Thera’s ability to repay its debts.

The Charity makes an annual pension charge for these schemes which is based on a full actuarial valuation or otherwise as disclosed in the financial statements. Contributions for these schemes are set by either the Government Actuary or a qualified actuary.

10. Taxation

Information regarding taxation is based upon current UK taxation legislation and HM Revenue and Customs practice. Tax law and practice is subject to change. Any changes in the level and basis of taxation, in tax reliefs or in HM Revenue and Customs practice may affect the value of an investment in the Bonds and returns to Bondholders.

Risks relating to the industry

11. The Property Market

The Charity’s principal assets are its freehold properties. A collapse of the property market could result in a significant write-down in the carrying value of the portfolio and may result in a breach of banking covenants.

The Charity does not rely on the value of its freehold properties for operational purposes as they are held for long term use and are let to registered housing providers. Thera’s bank loans are secured against the freehold property portfolio but the Directors consider that the overall level of gearing is manageable and the risk of a breach of covenant is remote.

12. Changes in UK Government Policy A change in UK Government policy in relation to, for example, disability or housing could represent a threat to how Thera undertakes its work and its financial plans and could impact on its ability to trade profitably and to service and repay its liabilities, including the Bonds.

Recent UK governments have been broadly supportive of initiatives which help people with disabilities to live supported in their own communities. Protection of the most vulnerable in society would appear to remain firmly a cross-party political priority. As a result, Thera expects future UK governments to continue to protect the funding of social care and benefits to ensure the best possible result for the most vulnerable people and for the taxpayer.

13. National Minimum Wage Review by HMRC

In common with many organisations in the sector who employ staff during the night, a number of subsidiary companies in the Thera Group either have been or may be invited or intend, to join the Social Care Compliance Scheme in relation to the national minimum wage review by HMRC. As appropriate, companies in the Group are either satisfied with current contractual and policy arrangements or are updating their arrangements accordingly. There has been no specific adverse finding in relation to any company’s past practice, and given the wider uncertainty in this area, and having taken legal advice, the Directors further believe that, in the absence of adverse finding under the Scheme or otherwise, any contingent liability would either not be material or is not possible to quantify.

14. Regulatory Environment

Thera’s services are regulated by the relevant UK statutory bodies, including the Care Quality Commission in England and the Care Inspectorate in Scotland. These regulators have statutory responsibility for monitoring compliance with essential quality and safety standards and have enforcement powers, if services fall below these standards. These enforcement powers can include closing down services if necessary.

There is a risk that a major safeguarding incident has an impact not only on the individual with a learning disability but also on Thera’s regulatory status and reputation. An incident of this sort may adversely impact Thera’s standing with key stakeholders such as beneficiaries and their families and local authority customers and may result in statutory bodies and individuals no longer purchasing services. This could impact on Thera’s income levels and its ability to service and repay its debts.

All of Thera’s regional care and support companies (including Aspire Living, Ansar and The Camden Society) are registered with the Care Quality Commission or the Care Inspectorate. Of these, 10 have been inspected in 2017 and nine were inspected in 2016. Eighteen of these companies have met or been assessed to have an overall rating of ‘Good’, with one having met or been assessed to have an overall rating of ‘Requires Improvement’. There has been intensive work completed around the items under the ’Requires Improvement’ rating and the regional company reasonably expects that they will have an improved rating after the next Care Quality Commission inspection.

Thera also has several short break services that are registered with the Care Quality Commission and, where they have been inspected, on their last inspection, they have met or been assessed to have an overall rating of ‘Good’.

15. Local Authority Funding

Thera derives the majority of its income in relation to charitable activities (approximately 98% for the year ending 31 March 2017) from fee-paying contracts with local authorities or other statutory bodies to provide support to individuals with a  learning disability which are ultimately funded by the UK government. UK government plans to reduce public expenditure can result in a reduction in local authority budgets. Consequently, local authorities are seeking to effect savings where possible, which may impact on either the volume or the margin for certain contracts. This presents a risk to Thera’s income and could impact the Thera ability to service and repay its debts.

Thera supports some of the most vulnerable people in society – most of the people supported have a severe or profound learning disability. The Directors are confident that the UK government will remain committed to supporting such vulnerable individuals and believe they are unlikely materially to target this group when effecting budget cuts.

16. Housing Associations

If one of Thera’s partner housing associations were to go into liquidation and was unable to pay Thera monies due under lease arrangement, where the Charity is leasing properties, Thera would remain liable to pay its obligations under the lease. This could have a significant impact on the Charity’s financial results. Were this to occur, Thera would either seek to engage an alternative housing association to ensure rent continued to be paid to the Charity or directly take over the tenancy for relevant properties from the housing association.

Housing Associations are regulated by the HCA (Homes and Communities Agency) so to some degree the tenants’ security and the payment of the lease costs to Forward Housing are protected. If a housing association is seen to be in financial difficulties the HCA would put the housing association into supervision which could involve the replacement of its board or put the association under the supervision of another housing association who would take over the control of the association.


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