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Bond aggregator loses positive outlook as slower expansion affects its credit rating
Social housing bond aggregator MORhomes has lost its positive outlook from credit ratings agency Standard & Poor’s (S&P) on the back of what the agency called “prolonged expansion”.
While S&P maintained MORhomes’ A- long-term issuer credit rating and A- short-term rating, as well as its A- issue rating on its £5bn European Medium-Term Note senior secured debt programme, it revised the outlook for the company from positive to negative.
S&P said it had taken the decision because MORhomes’ initial expansion had been slower than expected.
“We anticipate that to expand the portfolio to a diversified group of borrowers will, in our view, take at least three years,” it said.
“MORhomes’ start-up status is a constraint for the rating because fewer than expected borrowers will further delay the stabilisation of its financial profile due to a slower build-up of capital.”
It also said the likelihood of MORhomes not significantly increasing its loan book in the next two years could result in a lower enterprise profile and put further pressure on the ratings.
Its negative outlook reflects the risk of a downgrade in the next two years if MORhomes does not “meaningfully” increase its loan disbursements, upping them to closer to £1bn per year by 2021.
In February, MORhomes backed away from a pledge to issue £1bn of bonds for housing associations this year.
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MORhomes said: “While we are very disappointed by the revised outlook, due to revising our targets for growing our loan book, we have achieved a great deal in our first year: becoming an operational lending business, establishing our social bond programme, making a successful debut benchmark issue and two recent taps bringing our loan book up to £312.5m.”
The company said in its first year it had lent a greater amount to more housing association borrowers than all other aggregators combined.
“However, under the S&P rating methodology our rating continues to be constrained because of our start-up status,” it added.
MORhomes is owned by around 60 social landlords and was established in response to concerns about the capacity of the sterling bond market to fund the needs of housing associations. It allows members regular access to the capital markets.
The company said it remains well capitalised with equity and loans from borrowers, second secured debt and standby liquidity facilities that provide four layers of financial buffer for the bondholders. It also holds substantial cash balances.
Last month it raised £12.5m for North Devon Homes, its 11th housing association borrower.
The money was raised from its existing 3.4% bond, which matures in 2038.
