Hightown Housing downgraded for governance over risk management

Risk management

In its regulatory judgement today, the regulator said that Hightown’s stress testing “does not clearly quantify the impact of sensitivities and scenarios on the business and its mitigating strategies are insufficiently developed”.

It added: “Stress testing needs to be strengthened to ensure that the board has assurance that the risks stemming from adverse events, and the effectiveness of the strategies to remedy them, are clear.”

The provider has maintained its top V1 rating for financial viability after the regulator’s in-depth assessment (IDA) provided assurance that Hightown’s financial plans “are consistent with, and support, its financial strategy”.

“The provider has an adequately funded business plan, sufficient security in place, and is forecast to continue to meet its financial covenants under a wide range of adverse scenarios,” the regulator said.

In a statement, Hightown Housing said: “We would like to thank the regulatory team for their work on our in-depth assessment. We are pleased to have retained our V1 rating for viability.

“We will work to improve those aspects of our governance highlighted in the regulatory judgement in order to regain a G1 rating.”

Early-years stock transfers

Meanwhile, in two further regulatory judgements today, the regulator has confirmed the existing governance and viability grades of two Lancashire-based former stock transfer associations while changing the basis for their viability grades. Both are rated G1/V2.

Bolton at Home, which owns and manages around 17,600 homes, and Salix, which has around 8,700 homes, are both the product of stock transfers within the past 10 years.

Bolton at Home took over the housing stock of its eponymous council in 2011, while Salix, formerly the ALMO of Salford City Council, completed its stock transfer in 2014.

Following IDAs, the regulator concluded in its separate judgements for each that there was no evidence to support a viability regrade for either provider. It found that both had “an adequately funded business plan, sufficient security in place, and is forecast to continue to meet its financial covenants under a reasonable range of scenarios”.

However, it identified specific risks to viability which each must manage.

Salix

In its judgement for Salix, the regulator said that Salix has the financial capacity to deal with a range of exposures but “needs to manage the material risks arising from its inherently tight covenant position to ensure continued compliance”.

It added: “As an early years’ stock transfer association, [Salix’s] financial covenants are subject to annual re-setting by its lender with little or no tolerance permitted from the revised business plan profile. This funding arrangement could restrict [Salix’s] ability to cope with in-year adverse variances.”

However, the regulator judged that the provider’s financial plans are “consistent with, and support, its financial strategy”.

Commenting on the judgement, Lee Sugden, chief executive at Salix Homes, said: "We are delighted to maintain our G1/V2 regulatory judgement grading at our recent IDA; we are particularly pleased to maintain the highest grade for the governance of Salix Homes.

"The viability judgement reflects our past as a relatively recent stock transfer, with a standard loan agreement still in place for stock transfers.”

Bolton at Home

In its assessment for Bolton at Home, the regulator flagged the fact that the provider “invests substantially in community support services, its existing stock and development programme, and forecasts significant income from shared ownership sales and disposals”.

It said: “BH needs to manage these risks to ensure continued interest cover covenant compliance.”

Jon Lord, the association’s group chief executive, said: “We are pleased to retain our ratings and to have been able to work positively with the regulator to complete the process during the current crisis.”

Elsewhere this morning, the regulator downgraded a major housing and care provider for governance after identifying issues in its rent-setting.

Housing 21, which manages around 21,000 retirement and extra care living properties for older people in England, was downgraded to G2 after the regulator identified “an overcharge to tenants of approximately £3m”.