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Moody’s: London associations’ merger will hit profitability

The merger between Notting Hill and Genesis will damage profitability, despite bringing efficiency savings, credit ratings agency Moody’s has said.

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Picture: Getty
Picture: Getty

Notting Hill’s credit rating was downgraded to Baa1 from A3 in a judgement by the agency due to the recently completed merger with Genesis, which has a lower rating.

Moody’s said the 64,000-home merger would bring the credit ratings of the two organisations in line with each other, with the higher-rated association being downgraded and the lower-rated one upgraded from Baa2 to Baa1.

In its judgement, the agency added: “Although Moody’s expects Notting Hill Genesis to realise efficiency savings as a result of the merger, Moody’s expects the merged entity will have lower profitability than Notting Hill has had historically in the medium term.

“The weak profitability of Genesis’ social housing lettings on a standalone basis (20% in 2017) will curtail Notting Hill Genesis’ profitability, expected to remain near 30% over the next three years, a level below Notting Hill’s historically solid margins.”


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The agency forecasted that the new organisation, Notting Hill Genesis, will have a combined turnover of £1bn in 2020.

It said it expected the new organisation to increase the size of its market sales programme, making its cashflow more volatile, especially in the context of a weakening London housing market.

After the upgrade, Genesis no longer has the lowest credit rating in the sector. Previously, it had been the lowest-rated – alongside Poplar Harca – at Baa2, only two notches above ‘non-prime’ levels, but it is now up to Baa1.

Genesis’ previous plan to merge with Thames Valley Housing originally pushed its credit rating down to Baa1, with Moody’s predicting plans to scale up development would “exert downward pressure on their key metrics”.

That merger fell through, but Genesis kept its reduced rating, which fell further to Baa2 when Moody’s downgraded its entire portfolio of housing associations over Brexit.

Notting Hill was also downgraded as part of that judgement, and was specifically singled out for failing to issue a bond necessary to cover certain planned developments, a direct result of work being done on the merger. The association eventually issued this £400m bond in October last year.

Notting Hill Genesis has been approached for comment.

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