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Two large London housing associations get credit downgrades
Two large London housing associations have received credit downgrades as fears grow over the state of the housing market in the capital.
Credit ratings agency Moody’s issued updates on Southern Housing Group, which had its rating downgraded to ‘A3’, and Optivo, which saw its credit rating remain at A2 but its outlook move to ‘negative’.
Moody’s said that Southern’s downgrade “reflects the group’s growing risk appetite and strategic shift, which will result in a significant growth in debt, capital expenditure (capex) and market sales over the next three years”.
According to the update, the timing of these moves by Southern makes the risks more serious as house prices are falling in London and the South East of England.
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Moody’s said that, under current plans, market sales will make up 46% of Southern’s turnover by the financial year 2022, up from 26% in the last financial year.
Amanda Holgate, executive director of resources at Southern, said: “The decline in metrics to 2022 reflects the early years of a development programme that has been increased as a result of our strategic partnership with Homes England.
“Interest cover ratios improve steadily and consistently thereafter and gearing stabilises at levels that remain low throughout relative to A3-rated peers. We maintain ample headroom against our covenants for the duration of our plan, as we grow our asset base through both development and stock acquisition.”
Moody’s also downgraded Optivo’s outlook to negative, meaning its rating is likely to be downgraded in future.
It said that this “reflects Optivo’s development ambitions in a context of a softening property market and weaker economic outlook, which will result in increasing debt levels and higher capital spending and development risk, as well as weaker interest coverage, with financial metrics moving to levels more closely aligned with A3 peers”.
An Optivo spokesperson said: “The only change to our strategic plan since merger in May 2017 has been to de-risk – by reducing our exposure to market sales activity. We’ve the same development ambition and financial rules in place to protect the business.”
Moody’s noted this reduction of risk in its update but said that the development aim of 1,500 homes per year would still lead debt to increase to around £1.9bn by the financial year 2022, up from £1.2bn in the last financial year.
