Guinness and Octavia regraded for viability over build plans

News13 Nov 2019Sarah Williams

Two housing associations, The Guinness Partnership and Octavia Housing, have been downgraded for viability from V1 to V2 in regulatory judgements published today.

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.@GuinnessGB and @Octavia_Housing regraded to lower viability score over build and investment plans #ukhousing #socialhousingfinance

Both organisations maintained the highest rating for governance, at G1.

The Regulator of Social Housing noted that the organisations continue to comply with the financial viability element of its Governance and Financial Viability Standard, but highlighted increased investment in both existing homes and developing new homes.

In its judgement for national organisation Guinness, the regulator said that the provider’s development strategy is “predicated on cross-funding between affordable housing provision and a debt-funded market sales programme, with a reliance on sales surpluses to meet interest costs as the development programme increases in size”.

It added: “The sales programme gives rise to risks and exposures which Guinness needs to manage and, combined with increased investment in existing homes, reduces the capacity it has to respond to adverse events.”

London-based housing association Octavia, which owns around 5,000 units across central and west London, was regraded for viability following a stability check and reactive work. The regulator said that Octavia’s financial plans are consistent with and support its financial strategy, with an adequately funded business plan and sufficient security.

It added that Octavia is forecast to continue to meet its financial covenants. However, the regulator said that the latest plan forecasts increased costs associated with the development programme, while a rise in interest payments and in shared ownership selling costs was forecast to “negative impact interest cover for several years”.

The judgement added: “Consequently, there is reduced capacity available to offset the potential impact of risks crystallising, including specific risks relating to the sales programme and the possibility of additional fire safety work.

“Stress-testing did not provide evidence of the plan’s robustness in the event of severe but plausible downside scenarios.”

In a statement, Octavia Housing said: “We are committed to building more quality affordable homes for local people and prioritising continued investment in health and safety for our residents.

“This brings increased exposure to risk and Octavia takes a long-term view. We are confident that a strategy that places emphasis on providing new, much-needed affordable homes and concentrating on resident safety is the right thing to do.”

Eden Housing

Meanwhile, North Cumbria-based Eden Housing saw its viability grade return to V1 in a judgement that noted “increased financial resilience”. It also maintained its G1 rating for governance.

The circa 2,010-home landlord was one of several housing associations regraded to V2 from V1 in November 2017, when the regulator reconfigured its ratings approach in response to the growing diversification of the sector towards more market-focused activities.

Today’s regulatory judgement notes a business plan that is “fully funded with no requirement for refinancing”, alongside improved interest cover and liquidity ratios.

The regulator added: “Eden has sufficient security in place and is forecast to continue to meet its financial covenants. As a result, Eden now has the financial capacity to deal with a wide range of adverse scenarios.”

Eden has been approached for comment.

The regulator meanwhile confirmed the existing grades of a number of providers following stability checks.