Futures downgraded from A+ to A

In its credit rating report, S&P said it projects costs for the East Midlands-based landlord to increase particularly in fiscal 2025, and remain high.

However, despite weaker financial performance relative to prior expectations, the housing association’s adjusted EBITDA margins should still improve after fiscal 2025, S&P added.

This is supported by the credit rating agency’s assumptions that rental growth will exceed inflation and that the landlord’s investments will “remain stable, albeit elevated”, through to fiscal 2027.

S&P added that it expects the impact of weaker financial performance on debt metrics to be contained since it projects limited debt need and minimal interest rate risk over the next two years.

The credit rating agency also said it continues to view FHG’s management as a “key rating strength”.

“We think FHG is managing risks and maintaining flexibility in its development plan to contain additional pressure on metrics and limit the need for new debt,” S&P said.

S&P has also downgraded the rating from A+ to A on the £270m bond issued in February 2019 by Futures Treasury. This is FHG’s funding vehicle set up for the sole purpose of issuing bonds and lending the proceeds to FHG.

Ian Skipp, group finance and resources director at FHG, said that the change from A+ to A “was not unexpected and we don’t believe it’s cause for concern”.

“The rising costs of maintaining homes and meeting ever more stringent standards in the social housing sector are having an impact on all housing associations and Futures is not immune,” he said.

“At the same time, we have strategically decided to prioritise investment in our customers’ homes with ongoing programmes around new homes, improved sustainability and energy-saving measures, and enhanced repairs and upgrade work. We are also doing more to support communities and struggling households.

“Our liquidity position remains strong, and we’re pleased to see that reflected in S&P’s comments in their grading statement.”

Stable outlook

S&P said that the housing association, which owns and manages more than 10,500 homes, has a stable outlook with the credit rating agency.

“The stable outlook reflects our view that FHG’s management team will manage costs and utilise flexibility to limit further pressure from high investments in existing stock,” S&P said.

“We could lower the rating on FHG if management adopts a more aggressive strategy that leads to financial metrics materially weaker than our projections, such as interest cover below 1x on a sustained basis.

“We could raise the rating if FHG contains costs, such that S&P Global Ratings-adjusted EBITDA margins exceed and remain above 20 per cent, with limited debt build-up and liquidity sustained at very strong levels.”

FHG is currently graded G1/V1 by the Regulator of Social Housing.

According to its 2023-24 financial results, the housing association posted a pre-tax surplus of £7.8m, a rise from £7m in the previous year. Turnover grew from £59.4m to £64.7m.