Moody’s downgrades up to £2bn of housing association loans

The other eight affected transactions are aggregated loans to groups of housing associations, some of which are linked to The Housing Finance Corporation.

In total, Moody’s estimates that the loans are worth between £1.5bn and £2bn.

Moody’s has not downgraded the credit ratings of the organisations in question, but merely the ratings of these transactions. Therefore, this is unlikely to affect the cost of borrowing for these housing associations in future, but could change the interest rates of these loans.

These types of transactions are secured by commercial property instead of residential real estate. They are typically paid off over a fixed repayment schedule, include reserve funds to pay interest on them and are signed with covenants related to income levels.

Because of these features, Moody’s has in the past seen them as more secure than most regular housing association financing deals.

The special administration regime, however, gives the Regulator of Social Housing the power to appoint administrators if a housing association goes bankrupt.

This means, in Moody’s view, that creditors will have less control over their security than before.

Sarwesh Paradkar, assistant vice president and analyst at Moody’s, told Inside Housing: “With this administration coming into force, we view that these characteristics, which are based on the control a security typically gives to a creditor, are diluted and no longer merit the benefit that we had attributed to them.

“If you are in administration, and the administration takes longer than initially anticipated, then debt service reserves could just run out. That’s just an example.

“It just dilutes this whole control that the creditor typically has over its security, because now the administrator would deal with the work-out for the housing association.”

Sanctuary, Guinness and L&Q all declined to comment, while Places for People did not respond.