GreenSquareAccord downgraded by Moody’s over ‘high debt’

In its report, Moody’s said: “The tight covenant headroom limits the group’s funding options, including increasing debt, as well as constrains the use of its high liquidity in the event of unexpected financial pressure.” 

In its last full year to the end of March 2023, GSA reported a post-tax deficit of £28.6m on turnover of £214.4m, partly due to financing costs.  

Moody’s also flagged that GSA’s interest cover covenant headroom is “among the lowest of its UK-rated peers” and will “remain tight because of high levels of debt combined with its low operating margin”. 

The agency said it expected GSA’s debt to remain around the current level of £1.1bn “over the next few years”. 

On the positive side, Moody’s said the landlord is tackling its weak performance having offloaded its Home Care operation, as well as some care and support contracts.

However, the agency said it expected these improvements will take “several years”. 

In terms of GSA’s strengths, Moody’s pointed to the landlord’s low capital expenditure due to its “modest” development programme, which has been cut by around 50% since the initial post-merger plan. 

Moody’s said the change to a stable outlook was due to GSA’s debt metrics expected to remain “weak but stable at current levels”. 

Jo Makinson, chief finance officer at GSA, said: “While we acknowledge the challenges cited by Moody’s in reaching their decision and understand the rationale, we are disappointed with the outcome given the strong performance shown by our plan in the short-to-medium term.

“We have significantly stabilised the organisation over the past three years post merger.”

In November, the landlord returned to a G1 governance rating with the English regulator, but kept a V2 grade for financial viability.

GSA had been handed a G2 rating six months after the merger. It came after a breach of the regulator’s Home Standard as hundreds of its homes did not have a current fire risk assessment and more than 10,000 never had an electrical inspection.

Ms Makinson said: “Responding responsibly and proactively to challenges from the past, making good decisions for the long term, leaves us well placed for the future, but [it] has crystallised one-off costs which have affected our early financial performance.”

She added: “We look forward with confidence to the coming financial year, where we will build on this year’s strong performance and continue to deliver for our customers.”

In September last year, the Housing Ombudsman launched a special investigation into GSA after making six severe maladministration findings against the landlord in three different cases.