Fitch downgrades five housing association credit ratings

A flurry of re-gradings issued by the ratings firm Fitch have revealed the deteriorating state of housing associations’ balance sheets across the sector.

Fitch has published assessments of eight housing associations, of which seven saw either their rating, their outlook, or both downgraded.

Five had their long-term issuer default ratings downgraded and two had their outlooks downgraded to “negative”.

Between them, these eight registered providers own or manage nearly 580,000 homes and take in revenue of £3.88bn.

The only one of the nine which was not subject to a downgrade in its rating or outlook was Gentoo, a housing association which provides homes for more than 60,000 people in Sunderland and turned over £168.7m in 2021/22.

In almost all cases where it issued a downgrade, Fitch cited “worsening financial leverage metrics”.

Housing Association	Date of judgment	Homes under ownership or management	Revenue	2023 Rating	2024 Rating	2023 Outlook	2024 Outlook
L&Q	16 Oct	109,000	£1.18bn	A+	A	Negative	Negative
Place for People	16 Oct	245,000	£832m	A	A-	Stable	Stable
Hyde	17 Oc	44,320	£306m	A+	A	Negative	Stable
Great Places	17 Oct	25,000	£168m	A+	A	Negative	Stable
Gentoo	17 Oct	60,000	£168.7m	A+	A+	Stable	Stable
Platform	18 Oct	49,000	£337m	A+	A+	Stable	Negative
A2Dominion	18 Oct	38,000	£399.6m	A	A	Stable	Negative
Notting Hill Genesis	18 Oct	67,636	£711.8m	A	A-	Negative	Stable

Fitch’s assessment of L&Q saw the housing association lose its A+ rating, which dropped to A. The ratings agency also maintained a “negative” outlook for L&Q, which it said “reflects its significant reliance on asset sales to improve debt metrics, which exposes it to market and execution risk”.

Housing Today revealed earlier this year that L&Q was exploring the sale of non-core assets including its private rental properties and strategic land company, the latter of which was sold to Urban & Civic in July.

Fitch observed that, over the past three years, L&Q’s leverage had remained high, with net debt/EBITDA averaging 17x.

While it acknowledged L&Q effort to “regain financial resilience” through stock rationalisation and divestment from non-core assets, it said that the housing association’s reliance on asset sales “exposes it to external market conditions”. 

It additionally noted L&Q’s need to invest substantial amount to meet decent homes and energy efficiency standards, which it said would “weigh on its financials”.

Hyde also saw its rating drop from A+ to A, although its outlook was “stable”. 

Fitch said that while its leverage metrics have been high at 15x during the past two fiscal years, it expected that net adjusted debt/EBITDA levels peaked in this year “as a result of non-recurring expenditure related to fire and building safety costs”.

Fitch said it expected the performance of Places for People, which was downgraded from A to A- with a “stable” outlook, to be “aided by economies of scale”, due to recent mergers and that leverage was likely to decrease with costs.

“We project net debt to EBITDA to improve from 18x in FY24, averaging around 14.3x over the five years to FY29,” it said.

Platform maintained its A+ rating, but its outlook dropped to “negative”, which Fitch said “reflects the deterioration in Platform’s financial profile”. 

It said that the leverage ratio, which its rating case forecasts on average at just above 11x, had “moved closer to the lower end of the ‘bbb’ category”, resulting in a revision of the outlook.

Fitch assessed Great Places’ performance as “adequate, but deteriorating” due to macroeconomic pressures, with its rating dropped from A+ to A.

“We expect leverage to worsen over the rating case as planned capex for development and debt for reinvestment in existing stock increase,” it said. 

“Consequently, the reference leverage, averaged between the rating case and the last three years, is 11.7x, placing it at the weaker end of the ‘a’ category SCP.”

The downward revision of A2Dominion’s outlook “negative” reflects the risk that its credit profile will weaken over Fitch’s forecast period “to a level no longer commensurate with the current rating, given the limited headroom”. A2Dominion’s rating was maintained as an A.

Fitch said sector challenges “like building safety spend and energy efficiency reinvestment” had impacted its performance, but noted that the housing association “aims to recover financial resilience by limiting future development, disposing of non-core assets and re-investing efficiencies”.

It said net adjusted debt/EBITDA peaked at 18.2x in FY24, but that it expected it to improve as costs diminish, averaging around 10x in the final two years of FItch’s rating case and 11.5x over the five years to FY29.

Notting Hill Genesis had its rating reduced from A to A- with a stable outlook, which Fitch attributed to the same “sector challenges”.

“NHG has made strategic decisions to limit development and dispose of non-core stock to recover financial resilience in the medium term,” it said.

Fitch said it expected net adjusted debt to EBITDA to improve over the rating case and to average around 13.6x.

However, it said improvements would “hinge on asset sales and achieving the efficiency savings outlined in the plan”. 

“Reduced development limits fluctuations in cash flow but also constrains EBITDA generation, which impacts leverage metrics,” it added.