Octavia to keep BBB rating as merger discussions with Abri continue, says S&P

The two landlords entered merger discussions after the Regulator of Social Housing downgraded Octavia to non-compliant grades of G3 for governance and V3 for financial viability in September 2023.

Explaining its judgement in September 2023, the regulator criticised Octavia for “producing poor-quality and untimely financial data and setting unrealistic budgets”.

But in an update on 22 May, S&P said “the creditworthiness of the combined entity is likely to be stronger than that of Octavia alone”.

The agency said Octavia “operates under a strong regulatory framework” and the regulator “maintains close oversight” over the housing provider.

“We understand that partnership discussions between Octavia and Abri are continuing and that there is close cooperation between the leadership teams of both organisations,” it added.

Octavia, which is headquartered in Kensington and Chelsea in London and owns 5,000 homes, recently appointed new board members and a new interim chief executive, Kevin Bolt, the former head of BPHA, the Bedford-based housing association.

S&P said these appointments “have long experience and considerable expertise in the sector” and they will support Octavia’s governance and operations.

It continued: “We do not expect Octavia to breach its loan covenants, although we understand that its headroom has materially reduced.

“Sufficient information to resolve the CreditWatch placement has not yet been made available, but we anticipate resolving it before the end of the calendar year.”

S&P downgraded Octavia’s credit rating to BBB+ in December 2022 and to BBB in September 2023, after the regulator found it to be non-compliant.

An Octavia Housing spokesperson said: "We note that S&P Global Rating has maintained its ’BBB’ rating on Octavia on CreditWatch with positive implications. This reflects S&P’s view that our proposed partnership with Abri Group is likely to have stronger creditworthiness than that of Octavia alone.

"We are continuing to work towards the proposed partnership with Abri, to which Abri also remains fully committed."

When the merger was announced, Wayne Morris, group chair at Abri, said: “We were pleased to be given the opportunity to develop a potential partnership with Octavia. We have enormous respect for their 150-year heritage.

“Given our adjoining geographies and shared ambition, the partnership offers a potentially strong strategic fit. The deal could unlock greater investment in housing and support services, as well as protect the long-term provision of some 5,000 social and affordable homes in London.”