Council rated BBB+ in part due to homelessness pressures

S&P said: “While we understand that these investments and loans generate income for the council, we see significant risk related to this cash inflow, which could be vulnerable to a general economic downturn, further exacerbated by a degree of concentration of loans to specific borrowers. 

“Furthermore, the investments and loans are largely debt funded, resulting in Warrington having one of the highest debt burdens in the sector.”

S&P said Warrington’s financial policies and strategies show a “higher risk appetite than typically seen in the sector”. 

“We also note the absence of audited accounts since fiscal 2019, which we understand is partly due to the complex nature of some of Warrington’s investments and a sector-wide backlog of unaudited local authority accounts. 

“We understand that Warrington launched an investment program to generate additional income and to promote economic growth to compensate for its relatively low council tax income,” it said.

It made these investments in energy and solar farms, a local bank, and a housing provider, as well as properties and business parks in the region.

S&P said the stable outlook reflects its view that Warrington’s efforts to contain costs should mitigate pressures primarily relating to increasing demand for care services in the borough. 

“At the same time, we understand that Warrington is taking steps to address its high debt and exposure to non-treasury investments, which, if effectively delivered, should reduce its exposure to riskier activities,” it said.

According to S&P, the BBB+ rating “balances the supportive institutional framework under which local authorities in the UK operate against the council’s relatively risky investment policies and the debt funding of its non-treasury investments, which has resulted in a higher debt burden than sector peers”. 

“Furthermore, since 2010, the sector has seen declining government transfers, despite the increasing need to provide services and the higher cost of doing so,” it said. 

S&P said the council is in a “strong” liquidity position, which includes access to various sources of external liquidity, including the Public Works Loan Board (PWLB).

The rating was also supported by the institutional framework for UK local authorities, which S&P said is “very predictable and supportive”.

The credit rating agency acknowledged that there are currently “unaddressed” rising financial pressures in the sector, especially related to funding for education and care activities.

“Reforms to address these issues have been delayed, but we assume the new government will gradually implement them,” it said. 

S&P projects that Warrington’s budgetary performance will “modestly improve”, supported by economic recovery, moderating inflation, and the council’s plans to contain cost increases and improve efficiencies. 

It expects the council to post modest operating surpluses following the year to 31 March 2025. 

S&P said it expects Warrington’s debt to improve thanks to asset sales and repayments of previously extended loans. 

However, Warrington’s commitment to extend funds to social housing providers that have committed facilities with the council “could result in the council’s liquidity position becoming more volatile than we currently expect”.

The agency said it could lower the rating on the council if it perceives increased risks from high debt levels and risky investments. 

Pressure on the ratings could also stem from higher costs, or if capital investments rise above its projections, S&P said, adding: “In our view this would result in increasing deficits after capital accounts and a deterioration of the council’s budgetary performance.”

S&P said it would consider upgrading the council if it were to adopt a “more prudent” strategy and financial policy and “build a solid track record of reduced exposure to riskier activities”.

Hans Mundry, leader of Warrington Borough Council, said: “I’m pleased that we have received this positive credit rating, following a thorough evaluation of our financial health by S&P Global.

“Like all local authorities, we are facing financial challenges. This stable outlook can give us confidence that we are heading in the right direction and doing the right things to help us meet these challenges.

“It demonstrates that our proactive approach to maximising our resources and improving efficiencies is having a positive impact and helping to strengthen our financial sustainability.

“While we are encouraged by this rating, we will review the information and recommendations in the report, to help us identify ways in which we can further improve our financial performance and protect essential services for the people of Warrington.”