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Four housing associations see credit outlooks revised to negative
Four housing associations have had their credit outlooks revised to “negative” amid the coronavirus crisis having a major impact on the UK’s economy.
Fitch Ratings has revised down its view of the outlook for L&Q, Hyde, A2Dominion and Great Places Housing Group – meaning it believes their financial profiles could weaken over the next few years.
It follows the credit ratings agency’s decision to downgrade the UK sovereign rating to AA- with a negative outlook last Friday because of a “significant weakening” of public finances caused by the COVID-19 outbreak.
The move is not a reflection of the four associations as individual organisations, which have all retained their A+ ratings.
In a statement, Fitch said: “Fitch assesses registered providers under its Revenue-Supported Entities Rating Criteria.
“A one-notch uplift is added to the standalone ratings, reflecting the application of the [Government-Related Entities] criteria.
“These four entities have [Standalone Credit Profiles] of ‘A’ and are now capped at government minus one. Their outlooks reflect that on the sovereign.”
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It added that the downgrade to the UK’s sovereign credit rating “reflects the deep near-term damage to the UK economy caused by the coronavirus outbreak and the lingering uncertainty regarding the post-Brexit UK-EU trade relationship”.
A further downgrade to Fitch’s assessment of the UK’s sovereign credit rating would cause the landlords to be further downgraded. Any weakening of their individual profiles would also lead to a further downgrade.
The AA- sovereign rating would need to be upgraded for them to also receive an uplift.
Great Places, which had its rating affirmed last May, completed a 24,000-home merger with Equity Housing Group today.
Phil Elvy, executive director of finance at Great Places, said: “Fitch’s decision to downgrade the UK sovereign rating is not unexpected and the fact that we are inextricably linked to the government in their rating methodology means that there would inevitably be a knock-on impact and therefore all four Fitch-rated registered providers have been placed on a negative outlook.
“We don’t believe this decision is a comment on Great Places and nothing should be read into the revised outlook that suggests that we are impacted more than any other registered provider by coronavirus.”
He added that the merger with Equity provides “greater business resilience, greater financial strength and greater geographical focus to enable us to respond to the impact of coronavirus and support our colleagues and customers”.
A spokesperson for 95,000-home landlord L&Q, which was given its A+ rating by Fitch in July 2018, said: “Under the Fitch methodology, registered providers are assessed under ‘Fitch Revenue Supported Rating Criteria’.
“A one-notch uplift is added to the Standalone Credit Profile, reflecting the application of the ‘Government-Related Entities’ criteria, and constituting the final rating.
“Therefore, as per the Government-Related Entities criteria, the rating will be capped at UK sovereign minus one and as such L&Q’s outlook being revised to ‘negative’ will reflect that of the UK sovereign rating which also has a ‘negative’ outlook.”
Hyde, which owns around 50,000 homes, had its Fitch rating affirmed last March, while 38,000-home A2Dominion’s rating was confirmed in May.
Dean Tufts, executive director (finance and strategy) A2Dominion, said: “This change in outlook is not a reflection of our business or a change in our rating. Instead, it reflects our position close to the government’s current rating and continued negative outlook.
“We remain amongst the highest rated organisations by Fitch in this sector.”
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