Rating agency expects fewer negative credit actions in sector
A senior figure at S&P Global Ratings has said he expects fewer social landlords to see negative rating actions in the future due to better risk management in the sector.
Felix Ejgel, managing director at S&P, said the agency had largely seen movements within the A rating category so far, with the sector average dropping from AA+ to AA-.
“We look at the difference between positive and negative outlooks on our ratings, and it’s below what it was for last decade at the moment. We expect less ratings action than we have seen before,” he said.
Mr Ejgel was speaking at the National Housing Federation’s Housing Finance Conference during a session on whether investors would “reset” with more landlords receiving BBB ratings.
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There have been several downgrades to BBB in the social housing sector in recent months and years.
Last year, S&P lowered its credit rating for L&Q from A- to BBB+ due to the substantial investments the association had to make in its existing stock.
In January 2025, the ratings agency assigned Warrington Borough Council a BBB+ rating, in part due to homelessness pressures.
Mr Ejgel said the agency is now seeing housing associations dealing with the risk of increasing demands on their balance sheets by rationalising spending.
“We see that social housing associations are addressing the issue now, maybe more than before, and trying to prioritise spending,” he said. “We had downgrades last year, but also we had revisions of outlook to stable and even upgrades. So that’s possible.”
Mr Ejgel added: “One interesting observation, though, is that most of the negative outlooks are concentrated at A- level. So that’s an interesting zone to keep an eye on because some A- rated entities may end up in the BBB category.”
Lauren Fradgley, assistant director of treasury at Stonewater, which is rated A-, told delegates: “It’s a possibility that BBB is out there on the horizon. Hopefully we don’t go there.”
She added that for investors, the prospect would not be “cataclysmic”. “I think the issue is more on our side. We need to adjust our expectations around what we’re comfortable with,” she explained.
Part of this is asking “what levers” are available if pricing and interest costs are affected by a downgrade. “I think there’s always something you can do to change tack a little bit with the strategy,” Ms Fradgley said.
S&P downgraded Stonewater’s credit rating in November 2024, with the agency expecting the landlord’s “elevated” spending on existing stock to “weaken” its debt metrics.
George Flynn, director at Savills Financial Consultants, also pointed out that some funders “actually quite like the fact that they can get paper at wider spreads and then can see a credit improvement”.
Investors might look for “a housing association at a G2 or a G3 [governance rating] to see the governance improvement plan and achieve a wider spread on that side”, he said.
Panellists also highlighted the fact that a BBB result is still an investment grade rating.
Chris Mathews, senior credit research analyst at the Pension Insurance Corporation, said: “I don’t think BBB+ is a bad rating.
“I think maybe there’s a perception that because the sector has been rated A category higher for so long, that a BBB+ is maybe a black mark against them, but it’s an extremely strong investment grade credit rating.”
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