Cross Keys assigned credit rating as it eyes £100m fund raising

Standard & Poor’s assigned the long-term issuer credit rating to CKH with a stable outlook, saying it expects CKH’s profitability will continue to support increasing debt levels.

The Peterborough HA was created in 2004 to take over the stock of over 9,000 units from Peterborough City Council.

It reported a 30 per cent operating margin and £46m turnover in the 2012/13 year, with an interest cover ratio of 3.05 and £178m of draw loans.

Click here to see Cross Keys’ 2012/13 financials

The S&P rating says: ‘In our opinion, CKH’s debt level, at 12.6x EBITDA (earnings before interest, tax, depreciation and amortisation) in year ending March 2014, is currently moderate and affordable - EBITDA interest coverage is strong at 2.6x.

‘That said, a planned increase in borrowing of about £100m in the financial year ending in 2015 will certainly put upward pressure on the debt-to-EBITDA ratio over the forecast period. We understand that the planned issuance will aim at refinancing existing debt and fund part of its capital program.

‘We expect that stable and adequate profitability levels will also continue to mitigate the risk of higher debt levels.’

The note adds that the rating also reflects the low risk environment of the HA sector, the strong economic fundamentals of CKH’s chosen market, and the HA’s main focus on lower risk traditional social housing activities. S&P adds that the rating reflects ‘a moderately high likelihood that the UK government would provide timely and sufficient extraordinary support to CKH in the event of financial distress’.

It says that the good operating performance of CKH’s property portfolio and adequate liquidity are additional strengths for the rating.

‘We anticipate that CKH will achieve higher profitability in current year 2014-2015, thanks to ongoing efforts to contain its operating costs and higher turnover from new properties,’ it adds.

A large share of its properties, or 83 per cent, is allocated to general needs and affordable housing tenures, with 11 per cent in sheltered housing and 2.7 per cent in shared ownership.

Market rent amounts to less than 1 per cent of the property stock with a similar proportion of extra-care, which started in June 2014 with the development of a new scheme.

It says CKH’s operational performance is ‘very robust with low void levels at 0.6 per cent in 2014 and a well-kept property stock of 45 years on average’. Arrears have been reduced substantially since the entity completed its refurbishment program under the stock transfer agreement in 2010.

CKH plans to deliver about 250 units per year based on a combination of mainly affordable rent and shared ownership tenures, with some extra care tenures and market rent lettings.