S&P downgrades credit rating of London housing association RHP

RHP has had its long-term issuer rating from S&P lowered from ‘A’ to ‘A-‘ as the rating agency said energy efficiency upgrades to existing stock will have more of a financial impact than previously projected.

The 11,000-home association, based in Richmond, west London, has also had its issuer rating on its £275m bond lowered from ‘A+’ to ‘A’. 

S&P said it now expects RHP’s financial metrics to “recover more slowly” because costs over the next three years are projected to be higher than previously forecast.

It said: “The delay mainly stems from higher investment in existing assets, linked to the cyclical replacement of components and to the investment needed to bring the housing portfolio up to EPC C standards by 2030.

“The cost of these investments is likely to weigh on RHP’s performance, even though it is partially covered by grants from the Social Housing Decarbonisation Fund.”

RHP last year announced a five-year programme to improve 1,645 homes to Energy Performance Certificate C.

S&P also said RHP’s debt metrics will be weaker than previously projected as it expects lower non-sales earnings and higher debt-funded stock expansion. It projects adjusted EBITDA margins will remain below 20% of turnover on average to 31 March 2027, which is lower than previous projections.

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However, S&P said from 2024/25 it expects RHP’s rent revenue growth to outpace cost increases, allowing margins to recover.

S&P said RHP’s focus on ‘low-risk’ traditional housing activities means its sales exposure is less than 10% of total revenue and it does not expect RHP to move into open-market sales or expand its shared ownership activity.

It added: “In our view, RHP’s access to external liquidity is satisfactory and the group has a good record of accessing debt capital markets.”

An ‘A’ rating mean an organisation is deemed to have “strong capacity to meet financial commitments, but somewhat susceptible to economic conditions and changes in circumstances”.

RHP’s five-year stock improvement programmme includes delivery of 1,250 kitchens, 400 bathrooms, 332 new roofs, 432 replacement windows and an improvement in 1,645 of homes to EPC C through passive measures of insulation, replacement of windows, heating upgrades and roof improvements.

The provider’s energy efficiency programme includes £15m of improvements over the next five years.

A spokesperson for RHP said: “We have made considered choices to increase investment to improve the energy efficiency and safety of our homes and our services to our customers, alongside our steady and cautious continued development of new homes.

”We recognise this was likely to lead to a re-assessment in our credit rating. We are pleased to confirm our revised credit rating to A stable reflects these strategic choices.”