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Aggregator retains ‘A’ credit rating from S&P despite economic turbulence
Social housing bond aggregator The Housing Finance Corporation (THFC) has retained its ‘A’ rating from S&P despite the UK’s economic turbulence.
Ratings agency S&P said THFC has a “stable outlook” and its conservative risk management and governance structures will help see the agency through this period of high inflation.
The aggregator’s management policies and governance standards were described as “adequate”, supporting robust financial ratios by mitigating the potential weakening of asset quality.
Under financial risk profile, S&P highlighted THFC’s “strict matched-funding approach that ensures the funding and liquidity ratios remain structurally above 1x”.
In its analysis, the ratings agency also noted the low industry risk of the UK social housing sector, where THFC has a loan book of more than £8bn.
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“The rating represents a vote of confidence in THFC as a key funding partner to the sector during this period of high inflation and a potential rent cap due in the coming months,” the aggregator said.
S&P explained that economic challenges could lead to weakening credit quality in the UK social housing sector, but said that THFC’s risk management policies will allow it to mitigate these pressures.
The agency said a downgrade could only occur if the credit quality of the social housing sector “deteriorated significantly to the point where a payment default occurred and a loss crystallised, eroding the company’s reserves enough to halve its capital ratio”. Or if THFC’s risk management policies became less prudent.
The aggregator’s rating would be raised if its market position strengthened significantly, as it looks to navigate an increasingly competitive environment and maintaining strong financial indicators.
Earlier this year, S&P warned that housing associations’ credit ratings could suffer as they tackle rent levels and inflation. Analysis by the agency in August revealed that more than a quarter of the 43 associations it rates could see “very weak interest coverage” if they are unable to cover cost increases by boosting revenues or scaling down costs.
THFC’s latest rating comes shortly after S&P moved the UK sovereign credit rating to a ‘negative’ outlook following the Mini Budget set out by chancellor Kwasi Kwarteng last week.
Piers Williamson, chief executive of THFC, said: “At a time when rating agencies generally are examining both the macro and the micro of housing associations, this represents a big vote of confidence.
“I don’t think anyone of us are under any illusions that the next months will be tough generally, but particularly for housing associations and their customers.
“For our ‘A’ stable rating to be affirmed is a testament to our strength and should differentiate us increasingly as other credits come under pressure.”
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