Moody’s rates first Northern Irish association and introduces ESG factors

Moody’s said that Radius’ credit strength benefits from strong liquidity, which is expected to strengthen further following additional borrowing planned for fiscal year 2020.

Ninety per cent of Radius’ turnover stemmed from low-risk social housing activities in 2018/19, Moody’s noted.

While the association plans to diversify over the coming years, with an increase in market sales activity expected to reach seven per cent of turnover by 2021/22, from four per cent in 2018/19, Moody’s said that the increase was “modest”.

It added: “We view Radius’ market sales as lower risk than those of its English peers due to different strategic drivers and more supportive demand dynamics in Northern Ireland.

The agency also looks favourably on a “strong institutional framework governing housing associations in Northern Ireland”, including capital grant that covers a higher proportion of build costs, and the ability of housing associations to set rent increases on an annual basis on their own terms. It also cited a “quantified, realistic annual target for growth” on the part of the Northern Ireland government.

Moody’s rating noted that there is heightened political uncertainty in Northern Ireland because of the lack of government as of September and its “pivotal role in Brexit negotiations”. But it stated that the risk to Radius is seen as low, because of the political consensus for social housing, a “stable and generous capital regime, strong regulatory oversight”, and the ability to raise rents to mitigate higher cost inflation.

John McLean, chief executive of Radius, said that the provider is looking forward to using its new rating to raise finance to fuel its provision of high-quality homes.

He said: “It is a challenging time for social housing providers and the need to source the most competitively priced private finance has seldom been greater.

“When Radius was formed we set our sights on accessing the debt markets as an alternative means of funding new homes and reducing housing stress across Northern Ireland.

“We were delighted to receive an A1 stable rating from Moody’s, representing the highest rating obtained by any UK housing association. This is a firm endorsement of Radius, its governance arrangements, clarity of vision and business plans.”

ESG factors

The credit opinion marks the first new rating from Moody’s to explicitly state ESG factors. It comes after fellow credit ratings agency Standard & Poor’s revealed that it would roll out ESG impact research into its credit ratings updates for public sector finance later this year.

Assessing ESG factors at Radius, Moody’s said that environmental considerations were “not material” to the provider’s rating, but it added: “Social considerations are material and include factors such as socially driven policy agendas and demand for social housing which are reflected in our assessment of the operating environment.

“Radius’ management and governance is strong with policies that are aligned to its business plan and a risk-averse strategy focused on social housing lettings.”

It said that Radius benefits from strong oversight from Northern Ireland’s housing regulator – the Department for Communities – which monitors financial, governance and consumer performance.

An update to Yorkshire Housing’s credit opinion the same day (10 September) also incorporates ESG factors.