Inside Housing – Home – Six housing associations’ credit ratings downgraded as economic woes hit sector

The credit rating of 6,500-home Alliance in the West of England was downgraded from A1 to A2 “due to rising debt levels and lower interest coverage ratios”, while its BCA dropped from a2 to a3.
Two London landlords’ credit ratings also fell. Newlon Housing Trust, which manages 8,300 homes in the capital, dropped from A3 to Baa1, reflecting the “anticipated worsening” of its debt and interest cover.
The provider’s BCA was also downgraded to baa3 from baa2 because of anticipated high capital costs in the next three years, spending on building safety work and high debt exposure.
East London’s Poplar Harca, which has around 9,000 properties, had its credit rating downgraded to Baa2 from Baa1 and its BCA to ba1 from baa3. Moody’s said it was one of the landlords most exposed to a housing market downturn and was more vulnerable because of “weak operating margins and interest covers”.
The rating of Baa3 is Moody’s lowest ‘prime’ rating. Below this, organisations are considered “speculative” investments that “are subject to substantial credit risk”.
Seven housing associations retained their A3 credit ratings: Great Places, Guinness, L&Q, PA Housing, Saffron, Saxon Weald and Yorkshire Housing.
Moody’s said that while operating margins had weakened for all seven landlords, they continued to outperform or were in line with the median of A3-rated peers. “All continue to display solid liquidity coverage, with liquidity policies in line with the sector – typically covering more than 24 months of net cash needs,” the agency said.
However, all seven’s BCAs were downgraded to baa2 from baa1. According to Moody’s, this reflects the housing associations’ “high exposure and lower resilience to weakening economic conditions”.
G15 landlord L&Q is highly exposed to a contraction in house prices, according to Moody’s, because, like Poplar Harca, it expects more than 30% of turnover from market sales (including joint ventures) over the next three years.
Moody’s report also revealed “considerable variation” in the social landlords’ exposure to decarbonisation costs.
The agency said only 50%-65% of the stock of some landlords, including Poplar Harca, Saffron, Saxon Weald and Yorkshire, had an energy performance certificate (EPC) rating of C and above. This compares poorly with the median of 72% for rated housing associations, Moody’s said.
According to Moody’s, its ratings also reflect underlying sector strengths, including high demand for social housing, strong asset bases and effective oversight by the regulator.
The ratings incorporate a one to two notch uplift, based on Moody’s assessment of a strong likelihood of extraordinary support for the sector from the UK government.
Last October, Moody’s changed the outlook for the sector from stable to negative, warning that it faced a stormy period. S&P, another large rating agency, also gave notice that ratings could be hit.
In a report last year, S&P said the “widening gap” between rent levels and cost inflation in the current financial year poses “significant challenges” for social landlords. 



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