Negative credit rating outlook might raise costs but won’t stop bond plans
Landlords shrug off Moody’s downgrade
Social landlords believe they can continue to raise cheap money on the bond markets despite a change in their credit rating outlook.
Credit rating agency Moody’s last Thursday downgraded the outlook of the 14 housing associations it rates from stable to negative. It also revised downwards the outlook for Birmingham, Wandsworth, Lancashire, Guildford and Cornwall councils.
This revision means Moody’s considers the landlords more at risk of a downgrade than previously, although they all keep their current ratings. The decision follows Moody’s warning of a negative outlook for the UK’s coveted AAA rating last week.
Gianfilippo Carboni, analyst at Moody’s, said it had decided to change the outlook across the housing sector because of the ‘close linkage’ between risks the government is facing and social landlords, which receive government funds.
He stressed, however, that any decision to downgrade the ratings themselves would be made according to landlords’ individual circumstances.
Peabody, which issued a £200 million bond last March, has had the outlook for its AA2-rated bond downgraded. Steve Howlett, chief executive of the 20,000-home association said the move would be unlikely to have an immediate impact and does not reflect the financial strength of the sector. But he added: ‘It could possibly, over time, lead to those funds [bonds] increasing in cost and that is not good news.’
Brian Johnson, chief executive of 20,000-home Moat, said: ‘It is not great news, but I’m not sure anyone really understands whether this will make a huge amount of difference.’
Mr Johnson said the government’s welfare reforms, including plans to cap benefit and pay tenants directly, are likely to have a much bigger impact on association’s credit ratings.
Radian two weeks ago said a £100 million bond issue was ‘imminent’, but has yet to issue the bond. A spokesperson for the 18,000-home landlord refused to confirm if Moody’s action was the reason for the delay.
Paul Rickard, director of corporate finance at 63,500-home Circle, another of the affected associations, said it was unlikely the costs of raising money on the capital markets would increase as a result of Moody’s action.
The other associations to have their outlook downgraded are Amicus Horizon, Affinity Sutton, Genesis, Hastoe, London & Quadrant, Midland Heart, Notting Hill, Places for People, Radian, Sanctuary and Sovereign.