Thursday, 27 April 2017

Moody's cuts housing associations' credit ratings

Rating agency Moody’s has downgraded the credit ratings for almost all English housing associations, citing a ‘weaker regulatory framework’ among its reasons for the decision.

The agency, which rated 26 housing associations as of December last year, made the move less than 24 hours after UK sovereign debt lost its AAA rating.

While the loss of the top rating was a catalyst for a review of the sector’s credit worthiness, the one-notch downgrade has also come about because of ‘a reassessment of the potential provision of extraordinary support’ for housing associations.

A note sent to rated landlords this morning also referenced the continuing uncertainty over the future of Cosmopolitan Housing Group as a reason for downgrading issuers.

The note said the downgrade ‘largely reflects a somewhat weaker regulatory framework, particularly in light of an evolving situation concerning an HA (housing association) in financial distress’.

Moody’s will continue to monitor the situation and did not rule out further downgrades for the sector as the impact on balance sheets of welfare reform begins to be seen in the coming months.

It also said that ‘further weakening of the UK government’s credit profile’ could have a knock-on effect on the sector.

Last December, it warned that housing associations were at risk of downgrade in light of challenges they faced around welfare reform. This came after all issuers in the sector were placed on a ‘negative outlook’ earlier in the year.

Until the downgrade, Moody’s had given 11 housing associations its third-highest Aa2 rating. These included Affinity Sutton, London & Quadrant, Midland Heart and Sanctuary. A further 13 providers had the fourth best Aa3 rating, while Genesis Housing Association and B3 Living had an A1 rating – the fifth highest.

Two housing providers have kept their ratings - Genesis and Baa2-rated Assetttrust Housing Association - but both have had their ratings placed on review for downgrade.

One housing association chief executive, who did not wish to be named, said: ‘It is unclear how investors will react to this as perhaps they have already taken the perceived risks of landlords into account when investing.

‘The UK downgrade is the trigger for this, but the bigger concern is what Moody’s thinks in terms of regulatory weakness at the Homes and Communities Agency. This is a big concern as it shows there is a real worry that an association could go bust and that investors could lose money.

‘Some associations have been very risk averse and stuck to the knitting, but we are not all in the same position. Some, as you can see with Cosmopolitan, have been more adventurous. I’m sure we’ll now see a wider range of bond pricing for housing associations as a result.’

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