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Moody’s downgrades entire housing association portfolio over Brexit
Forty housing associations have had their credit ratings downgraded as the UK edges closer to leaving the European Union single market and customs union.
As a result of downgrading the UK’s overall credit rating, agency Moody’s also downgraded various different entities it considers linked to government, including its entire portfolio of rated housing associations.
It predicts that the country’s medium-term prospects for economic growth will be harmed by the government’s decision to leave the single market.
Housing associations receive a boosted credit rating from Moody’s due to a perception that the government would step in should an organisation get into trouble paying its debt.
As part of the downgrade, Moody’s also singled out Notting Hill Housing for failing to follow its own treasury policy and becoming less able to repay its debts as a result.
Last week, Moody’s downgraded the UK’s credit rating to Aa2, two rungs below the triple A rating to which Britain had become accustomed until 2013, shortly after Theresa May’s speech in Florence outlining her plan for negotiations with the EU over Brexit.
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The 40 housing associations it rates were affected by this downgrade as a reflection, according to Moody’s, of “the close institutional, operational and financial linkages between housing associations and the UK sovereign”.
The two lowest-rated associations remain Genesis and Poplar Harca, which have now been downgraded to Baa2. This leaves only two rating notches between their current ratings and ratings that would be considered ‘non-investment grade speculative’, or ‘not prime’.
The agency clarified that the sector remains relatively stable, with associations adapting well to “a challenging policy environment”. It also praised the Homes and Communities Agency for effective regulation.
Notting Hill Housing was the only association to have its base credit rating downgraded, indicating that the downgrade was related to the association’s individual circumstances, rather than simply a result of the UK downgrade.
Moody’s noted that Notting Hill has failed to follow its treasury policy. According to the policy, it is supposed to cover the costs of committed development with its liquidity.
This is supposed to cover the next 18 months of projected cashflow, but at the moment covers only 15. According to Moody’s, this is the result of “a combination of funding not materialising as planned and deferring of funding due to its merger discussions with Genesis”.
The agency expects Notting Hill’s liquidity to recover in the next few months, but has downgraded its credit rating in the meantime from A2 to A3. This remains a prime investment rating.
Update: at 9.18am, 29.9.17 A Notting Hill spokesperson said: “We had intended to go to debt capital markets in March with a benchmark bond issuance of at least £250m, but that had been delayed by our proposed merger with Genesis Housing Association. We are now carrying out that plan with an investor roadshow. We have always had enough funding to meet any commitments and the breach does not impact any loan covenants.”
