Five housing associations get credit downgrades from S&P

Housing 21, meanwhile was downgraded to A thanks to “an increase in capital repairs and a continued inclusion of shared ownership property sales in the company’s strategy”, S&P said.

The 20,000-home housing association’s focus on tenants aged 65 years old and above, S&P said, results in strong demand for its services. Nevertheless, the agency forecasted an increase in capitalised repairs, which it said will keep margins below 20% on average up to 2022.

The UK’s largest housing association, Clarion, had its credit outlook downgraded, meaning S&P may downgrade its A rating in future.

The agency said its housebuilding target would put pressure on Clarion’s finances. It added: “This building programme will translate into further debt accumulation and, combined with Clarion’s increased levels of investment in its stock and lower margins on sales, could put pressure on Clarion’s financial metrics.”

A spokesperson for Clarion said: “We retain two strong investment grades from [ratings agencies] Moody’s and S&P, and are confident that we are well placed to continue to build new homes and communities, following on from a record investment of £541m last year.”

Similarly, Stonewater had the outlook on its A+ credit rating downgraded to negative.

S&P said that the association’s “likely expansion of its shared ownership development programme will increase its exposure to market-related activities, which carry higher risks than traditional social housing rental activities”.

According to the agency, Stonewater, which manages 31,500 homes, will see revenue from shared ownership first tranche sales exceed 15% of its revenue through the forecast period, which runs to March 2022.

Nicholas Harris, chief executive at Stonewater, said: “S&P’s review concluded that Stonewater is still strong and the change in outlook sees Stonewater still well placed in the sector.

“We are confident we have the right balance between providing as many much-needed homes as possible and maintaining a sustainable financial strategy. Stonewater remains well positioned to continue with our ambitious development programme.”

Octavia Housing, a small London-based housing association, also saw its outlook fall to negative, although it retained its A+ rating.

S&P said that Octavia “continues to benefit from high demand for social housing products in its areas of operation” – central and west London.

However, it added that the association’s financial metrics are “weaker than what we initially expected” and that they were “putting pressure on debt ratios in a challenging environment where the housing market is slowing”.

In a separate rating also issued earlier this month, Sunderland-based housing association Gentoo had its credit rating upgraded from BBB+ to A-.

Although it now has the same rating as many other associations in S&P’s portfolio, its negative outlook means it is still the lowest rated of all the organisations rated by the agency.

Gentoo was declared non-compliant by the regulator in 2017 over pay-offs to departing executives.

According to S&P, the association has “consistently met objectives that it set out in its recovery plan” and it noted that Gentoo’s homes regained 100% compliance with the Decent Home Standard in July 2018.

Last month, S&P also downgraded Notting Hill Genesis to A- with a stable outlook, citing “lower sales and higher integration costs than we had anticipated”.

In May, the agency upgraded the outlook on Scotland’s largest housing association, Wheatley Group, to stable because of improved liquidity.

It also downgraded Richmond Housing Partnership to A+ because of an increase in market activity, meaning that it is no longer the highest-rated housing association in S&P’s portfolio.

Town & Country Housing, meanwhile, saw its credit rating fall to A because it joined the Peabody Group, which in S&P’s view had a lower credit profile.

In March, S&P also downgraded the outlook for Thrive Homes, a housing association with 5,000 homes in Hertfordshire, Bedfordshire and Buckinghamshire, because of its development programme.

Update: at 12.02 on 1.8.19 This story was updated to include a comment from Ms Harris.