Moody's affirms Sovereign's rating

The rating agency confirmed on Friday that the landlord retains its A1 rating, which is the fifth-highest notch, and means it is considered a low credit risk. Moody’s also affirmed the A1 long-term, senior secured rating of Sovereign’s vehicle Sovereign Housing Capital PLC.

Sovereign and Spectrum are in advanced talks to create a 56,000-home merger and announced the leadership team of the new organisation in April.

Moody’s said their affirmation of the rating “reflects our expectation that the credit strength of Sovereign will be maintained following the merger”. It said: “Key drivers for the merger are a shared geography, culture, and risk appetite, which will provide a solid foundation for realising projected efficiencies.”

It said it expects the merged landlord to maintaining operating margins above 30% and to deliver projected efficiency savings.

Moody’s however said the outlook on the rating was ‘negative’, meaning it is considered likely to worsen over the next couple of years. It said this was due to housing association “sector-wide risks” following the Brexit vote in June.

It said: “Pressures on public finances stemming from weaker GDP growth could result in further policies restricting housing association revenues. Additionally, volatile and/or slower house price growth could negatively impact sovereign, as it maintains a moderate level of exposure to market sales.”