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North West housing association receives A1 debt rating for £350m bond
Onward Homes has received an A1 debt rating for its proposed £350m bond from ratings agency Moody’s.
The 35,000-home social landlord is planning a £350m bond which will be used to refinance existing bank loans in order to simplify the group’s debt structure and fund its development programme.
Moody’s said the bond is expected to be long-dated with bullet maturity, meaning a lump sum will be made for the entirety of the outstanding loan at maturity date. Between £100m to £150m of the bond will be retained and these funds can be drawn within five years of the initial issuance.
Moody’s said the A1 grade is derived from the group’s A1 long-term issuer rating – also A1 – which was issued last month.
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The agency said: “The issuer rating reflects Onward Group’s very strong balance sheet with low debt, high interest cover ratios, strong liquidity, a conservative strategy focusing on low-risk social housing, moderate capital expenditure and effective governance and management.
“The issuer rating also incorporates the group’s weaker profitability and our assessment that there is a strong likelihood that the UK government (Aa3 stable) would intervene in the event that Onward faced acute liquidity stress.”
Moody’s said any downgrade to Onward’s long-term issuer rating could result in a downgrade to the debt rating while improved operating margins sustained at above 30%, improved liquidity and interest cover ratios of about 3.0x could result in an upgrade.
The agency added: “A strategic shift and higher risk appetite resulting in significantly higher debt, capital expenditure, and market sales compared to forecast would exert negative pressure on the rating. A material erosion in interest cover ratios would also exert negative pressure. A dilution of the regulatory framework or support for the sector, or a downgrade of the UK’s rating would also exert negative pressure on the rating.”
Inside Housing has approached Onward for a response.
Moody's rating scale
Aaa – obligations rated Aaa are judged to be of the highest quality, with minimal risk
Aa – obligations rated Aa are judged to be of high quality and are subject to very low credit risk
A – obligations rated A are considered upper-medium-grade and are subject to low credit risk
Baa – obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess speculative characteristics
Ba – obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk
B – obligations rated B are considered speculative and are subject to high credit risk
Caa – obligations rated Caa are judged to be of poor standing and are subject to very high credit risk
Ca – obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery in principle and interest
C – obligations rated C are the lowest-rated class of bonds and are typically in default, with little prospect for recovery of principal interest
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