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S&P revises Wrekin outlook to negative after merger talks announced
Credit rating agency S&P has revised its outlook for Wrekin Housing Group down, from stable to negative, after the landlord announced it was in merger talks with Housing Plus Group.
The West Midlands-based landlords revealed they were discussing a potential merger earlier this month.
S&P said the financial profile of the combined landlord “could be weaker than that of Wrekin” on its own, with the proposed merger possibly adding “credit risks such as higher risk appetite, elevated costs of integration, and increased investments in new and existing homes”.
The combined group will “possess increased financial and operational capacities”, but was likely to expand its “development ambition, which could pressure debt metrics and liquidity”, S&P said.
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“Increasing demand for investment in existing homes, costly care operations, and inflation will stress the financial performance, although rental increases and new units, which will drive revenue growth, will mitigate this somewhat.”
Wayne Gethings, group chief executive of Wrekin, said: “We understand the position S&P have taken without a final approved business case for their analysis at this early stage in the merger process.
“Given the backdrop of our operating environment, we believe now is the right time to engage in these merger talks with the aim of positively increasing Wrekin’s impact for the benefit of our customers and our employees.”
The new group would be one of the largest in the West Midlands, with “over 34,000 homes,1,800 employees, £250m of turnover each year and £1.9bn of assets”, he said.
S&P also expects the combined business to have limited exposure to sales activities, even though Housing Plus provides homes for outright sale, while Wrekin does not.
“Coming together as one organisation will let us do more for all our customers. The move will allow us to balance keeping costs down while investing more in the services we deliver, doing more to make homes energy efficient and having a positive impact on the local economy,” Mr Gethings said.
“We would also have a stronger and more influential voice in the region.”
S&P said it could lower Wrekin’s rating if there was a “material weakening” of the combined landlord’s credit profile or if “management deviated substantially” from its current strategy.
Wrekin’s outlook could be revised back to stable if management “contained risks associated with its investment in existing homes, the merger, and its development plans such that the adjusted EBITDA margin and interest coverage doesn’t weaken materially”.
Wrekin’s long-term issuer credit rating and £250m senior secured bond have both been affirmed at A.
A flurry of merger talks have been announced in recent months. In May, S&P affirmed the BBB credit rating of Octavia Housing – which is currently non-compliant with the Regulator of Social Housing – after it entered into merger talks with Abri.
Longhurst and Grand Union Housing have also entered merger talks to form a potential 37,000-home landlord.
