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Sunderland-based housing association credit outlook ‘negative’ due to Brexit fears
A North East housing association has had its credit outlook switched to negative due to the potential impact of Brexit on its Sunderland base.
Last week, Standard & Poor’s (S&P) released an updated rating for 30,000-home Gentoo Group, which kept its credit rating at A- but switched its outlook to negative.
The agency linked this move to the UK’s impending departure from the single market and customs union at the end of the year, with a trading deal yet to be agreed, and the potential for this to seriously impact Sunderland.
“The negative outlook reflects our view that substantial uncertainties remain surrounding trade agreements post-Brexit, which could harm the local economy, creating a challenging environment for Gentoo,” it said.
“This could reduce Gentoo’s sales margins – which accounted for over 25% of total revenue in [2019/20] – and increase arrears or voids if employment deteriorates.”
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Sunderland is home to the Nissan car manufacturing plant, the UK’s largest, which employs more than 7,000 people locally and sells 70% of its cars in the EU. Last week, a senior Nissan executive said the plant would be “unsustainable” in the event of a no-deal Brexit.
The COVID-19 pandemic has already seen the percentage of Gentoo tenants receiving Universal Credit rise from 11% to 20%. It accounts for 60% of rent arrears, which are expected to reach 6.9% of its total rental income and continue rising.
Elsewhere in the judgement, S&P commented positively on Gentoo’s business and said that new additions to its senior management and board “have strengthened gender diversity and the group’s leadership and risk management practices have improved”.
“Gentoo’s completed human resource modernisation plan -– which included a new defined contribution pension scheme, health plan, flexible working, career model and grading structure – should assist in retaining talent and keeping employee turnover below 10%,” it added.
The association has been through a turbulent period, which saw its governance rating downgraded by the Regulator for Social Housing and its longstanding chief executive leave the business.
But it has since begun rebuilding under new chief executive Nigel Wilson and chair Keith Lorraine.
The organisation said it will increase spending on capitalised repairs from £27m to £31m due to COVID-19 delays. These works include replacing gas boilers in seven towers with ground source heat pumps and the installation of sprinklers and fire alarms.
This will put pressure on the margin between income and expenditure, which is expected to fall below 17% before steadily recovering to above 20%.
Peter Lenehan, executive director of finance at Gentoo, said: “We are pleased to have our current rating affirmed given the challenging operating environment and understand the local economic challenges, and their impact on our outlook, as referred to by S&P in their assessment.”
Also last week, Fitch Ratings, another agency, published a verdict on London-based Notting Hill Genesis which upheld the organisation’s A rating and stable outlook.
The agency said it “expects the social housing sector to remain strong” despite the challenging climate resulting from COVID-19 and added that it “does not see any immediate rating impact from the pandemic on [housing associations], which are less affected than other Fitch-rated sectors”.
