Credit rating agency upholds 125,000-home association’s stable A3 credit rating
Moody’s has upheld Clarion’s stable A3 credit rating, saying its debt metrics are set to improve as a result of its “tempered” development ambition.
The 125,000-home association had previously been eyeing development of 4,000 homes a year, however it has now cut this to 2,500 homes due to challenging market conditions as it also rebalances spend towards existing stock.
Moody’s said: “Clarion has slowed its pace of planned growth, aiming for a yearly average of 2,500 homes over the next five years, to reflect the challenging operating environment in the UK.
“This tempered ambition is expected to curb debt growth and improve the group’s debt metrics. In addition, Clarion retains significant flexibility over its development programme, with only 4% of spend committed for fiscals 2024 to 2028.”
Moody’s said Clarion is projected to increase debt by just 2% over the next three years to £4.6bn with its gearing (debt to assets) averaging 44%, down from 48% last year. It said this is stronger than the average gearing ratio of A3-rated companies, which is 54%.
However, it said this improvement depends on successful market sales and an asset disposal programme generating £680m over the next three years.
Moody’s said Clarion has a “proactive approach towards efficient debt management” as demonstrated by its recent restructuring of £173m in fixed-rate loans.
However, Moody’s warned the association’s plan to increase outright sales and first tranche shared ownership receipts “increases cash flow volatility and the group’s exposure to the housing market
Downturn”. It added this risk is mitigated by Clarion’s decision to increase joint venture activity.
An A3 rating is a medium investment grade rating, that signifies a business has financial backing and some cash reserves with a low risk of default.
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