Credit rating agency revises Places for People’s outlook from stable to negative

S&P Global Ratings has changed Places for People’s outlook from stable to negative citing risks of higher costs related to investments in existing stock and its ‘ambitious’ development programme.

The credit rating agency also said the housing association’s “absorption of weaker entities’ aspirations” could lead to a sustained deterioration in the group’s credit metrics.

However, the report mentions that S&P does not expect PfP’s takeover of Origin Housing to materially impact the 245,000-home housing association’s financials.

>> See also: Housing delivery 31% up at Places for People

>> See also: Places for People appoints new managing director for developments

In April, Origin Housing, which received non-compliant ‘V3’ and ‘G3’ ratings for viability and governance from the Regulator of Social Housing, became a subsidiary of Places for People.

The credit agency noted that PfP’s outlook could improve gradually if it curbs investment in existing homes and delivers efficiencies in its repairs model, and if rent increases exceed cost growth.

S&P added “we could revise the outlook to stable if management’s actions to contain costs are effective, such that the group performs in line, or better, than our base-case scenario.”

The report added that S&P’s could lower PfP’s credit rating in the next two years if its Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) margins remain at around 15% and if its interest cover ration remains substantially below 1x over an extended period.

S&P said PfP has “a strong track record of successfully absorbing weaker entities”, adding that it projects PfP’s financial metrics will improve after “two fairly weak years”.

S&P attributed the ”weaker-than-historical performance” over the past two years to high cost inflation, increased regulatory requirements, and significantly increased demand for repairs services, while growth in rents was well below inflation. 

The ratings service warned that the group’s financial headroom has tightened, which may delay projected recovery and keep its credit metrics at current levels.

S&P projects that PfP will maintain a strong liquidity position over the next year, with a sources-to-uses ratio of approximately 1.6x. The group’s liquidity sources are estimated to be around £1.65bn, which includes cash, undrawn revolving credit facilities, asset sales, grant receipts, and operational cash flow.