Housing 21 placed on S&P’s credit rating watch list over 26,000-home merger

It added: “We also understand that ECCT’s operating surplus would be dilutive to the combined group’s adjusted EBITDA and consider that the operating model could potentially result in future debt-like obligations.

“In our view, this could add to pressure on the group’s adjusted debt metrics and potentially create a more volatile liquidity position.”

In its last reported full year to March 2022, ECCT saw its surplus drop a third to £15.9m despite a rise in revenue. 

If the merger completes, S&P said it could lower its rating on Housing 21 by one or two notches. 

It aims to resolve the CreditWatch over the coming months, once it receives more information, S&P said.

The agency said its current rating on Housing 21 reflected its view that the group “will continue to see strong and increasing demand for its services in retirement housing and extra care, which will drive stable and

predictable rental revenue and support financial performance”.

In its last reported full year to March 2022, Housing 21 posted a group deficit of £8.9m as it booked £20.8m in finance costs. Turnover rose 11.5% to £224.4m.

In response to S&P’s report, Housing 21 said that a final decision on the merger will be made by the end of September once the due diligence is completed but will be subject to board approvals.

“The revised financial metrics and liquidity requirements of the combined group will be a key part of the board’s decision,” the social landlord said. “At this point we expect the CreditWatch to be resolved.”

Last month Housing 21 acquired 445 properties from Clarion and in February it purchased 472 properties from Notting Hill Genesis.

GB Social Housing

On 24 July, S&P downgraded its outlook on social housing bond aggregator GB Social Housing (GBSH) from negative to stable. At the same time, it affirmed its ‘A-’ long-term issuer credit rating on GBSH and its ‘A-’ issue rating on its £2bn senior secured medium-term note programme.

“We project that leverage in the UK social housing sector, to which GB Social Housing PLC (GBSH) lends, will increase, pressuring associations’ debt metrics,” S&P said in its report.

“We also expect external factors such as cost inflation and higher interest rates will cause additional pressure on housing associations’ financial positions. These factors could cause underlying borrowers’ asset quality to deteriorate and put additional strain on our assessment of the public-sector industry and country risk assessment.”

According to its website, GBSH currently has 28 borrowers, including Settle and Sanctuary Scotland.

Its most recent bond issuance was a £4.2m series one issue on 21 October 2022.