Credit rating agency raises concern about short-term risk but says Hyde’s ‘third-party’ investor strategy could lower exposure in the longer term
Standard & Poors (S&P) has lowered Hyde’s credit rating due to its sales exposure.
The credit rating agency moved Hyde from ‘A+’ to ‘A’ with a negative outlook. It said Hyde is investing heavily in existing stock and has higher-than-expected direct exposure to sales activities, which together with market conditions, will keep its Earnings Before Interest, Taxes, Depreciation, and Amortization( EBITDA) margin below 20% in the next two years.
It said the 44,000-home association’s revised strategy “indicates a less conservative risk appetite and weaker financial indicators than previously assumed.”
It said: “The negative outlook reflects a heightened risk that Hyde’s exposure to sales activities, its sizable investments in existing stock, and high inflation could result in Hyde’s financial indicators slipping below our current forecast and hamper its anticipated recovery.”
S&P also lowered the rating on a £650m bond and a £400m bond issued by Hyde subsidiary Martlet. An ‘A’ grading means the association has “strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.”
The decision reverses S&P’s decision to move Hyde up to ‘A+’ in 2021 following a refinancing strategy.
Hyde is aiming to deliver around 9,200 homes over the next five years, with 5,000 built through joint ventures.
The association is aiming to de-risk its sales exposure by bringing in third party investors, however S&P said that in the short-term Hyde is taking more sales risk than previously expected.
S&P said Hyde’s direct exposure to sale could reduce in the longer term due to its ‘pre-sale arrangement’ with investors.
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Under this deal, investors buy units developed by Hyde at a pre-determined price, with homes managed by Hyde in return for a management fee. Hyde has such a partnership with investment firm M&G, under which M&G owns the homes outright and Hyde manages them.
Hyde last year also became the first housing association to register a for-profit provider with the Regulator of Social Housing. The for-profit arm Halesworth is 50% owned by insurance giant AXA. S&P said: “ We consider Hyde’s liquidity position remains extremely strong, thanks to large undrawn credit facilities that would cover lower-than-expected proceeds from fixed asset sales. Our view of Hyde’s satisfactory access to the capital markets also supports this assessment.
Andy Hulme, chief executive of Hyde, said: ““Our credit ratings remain strong, despite well-documented challenges facing the sector, including housing-market volatility, inflation and supply chain pressures.
“These issues have meant continued investment in our homes and services, which is the right thing to do for our customers, has impacted our margin in a planned and managed way. Our sustainable financial position gives us the flexibility to make these essential investments and to support our plans for the future.”
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