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S&P downgrades Stonewater amid ‘higher-than-anticipated’ debt levels
S&P Global has downgraded Stonewater’s credit rating downgraded as the agency expects the landlord’s “elevated” spending on existing stock to “weaken” its debt metrics.
In a new report, the agency said it had lowered its long-term issuer credit rating on the 40,000-home landlord to A- from A. However, it kept its ‘stable’ outlook for the group.
S&P said the downgrade reflected its view that “the group’s level of investment in existing homes will remain elevated, which, in combination with higher-than-anticipated debt levels, has resulted in weaker debt metrics”.
As a result, the agency said the situation had “delayed the improvement we previously forecast” at Stonewater.
Like many of its peers, the group is investing heavily in its homes. Stonewater’s operating costs jumped by nearly £30m to £187.2m in its last full year due to higher repairs and maintenance spending.
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“The level of spending on maintaining and repairing existing homes has risen in the past two years and has weakened the non-sales-adjusted EBITDA to below the level we expected,” S&P said.
Stonewater’s total debt as of the end of March 2024 was £1.96bn, up from £1.86bn at the same point last year.
However in its latest report, S&P added: “We expect potential grant funding for investment in existing homes and management’s focus on cost efficiencies will to some extent prevent the group’s credit metrics from deteriorating further.
“Furthermore, we think that the group’s strategy to scale back its developments will lessen the pressure because it will contain the debt build-up in our view, but the recovery will be modest.”
In its last full year, Stonewater built 1,185 homes, up from 963 the previous 12 months. However, the figure was down on its annual target of 1,500 homes, based on its 2022 to 2030 strategic plan.
S&P was also positive about the landlord’s top team. “The group’s board and executive team has solid experience and expertise in its operations and we understand that the group is taking actions to mitigate the pressure from economic and regulatory external factors and increased demand for services from tenants,” it said.
The agency said its stable outlook on Stonewater reflects that the “scaling-back of new home construction will contain the debt build-up, mitigating the pressure from a high level of investment in existing homes”.
Nicholas Harris, chief executive of Stonewater, said: “We’re pleased to retain an A credit rating from S&P and are assured that the overall outlook on Stonewater remains stable despite challenging sector conditions.”
He added: “While our commitment to investment in our existing homes has affected this rating, we are confident that the work we have planned will not only improve the homes we manage but significantly help customers thrive in warmer, safer and more comfortable homes.”
Earlier this month, the regulator reported that Stonewater had retained its top grades of G1/V1, following a stability check. The group has yet to be assessed for the regulator’s new consumer standards.
Stonewater has grown its portfolio over the past two years by taking on two small Surrey-based landlords – Greenoak and Mount Green – as subsidiaries.
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