Provider with lowest Moody’s sector credit rating upgraded

Measures included the implementation of a financial control framework in 2017, setting targets for clear financial ratios. Moody’s noted that while some targets are “less conservative than peers”, the commitment to operate within defined parameters is a “positive” for the organisation.

It quoted interest cover covenant headroom maintained at a minimum of 1.35x against a covenant of 1.1x compared with previous forecasts, which had a ratio as low as 1.12x.

It said: “Since a positive outlook was assigned in December 2018, Poplar’s debt and liquidity metrics have strengthened and are expected to further improve over the next three years. Poplar’s gearing (debt to assets at cost) was 47% in fiscal 2019, down from 61% in fiscal 2017. Gearing is expected to reduce further due to the group’s stable debt and growing reserves, reaching 46% by fiscal 2021.”

Moody’s said that credit challenges remain for Poplar Harca, in the form of weak operating performance, particularly on its core social housing lettings, for which the group reported an operating margin of 17 per cent for the financial year 2019, compared with the rated peer median of 34 per cent.

Combined with the group’s strategy to dispose of uneconomic assets and voids due to regeneration work, this weak profitability has reduced surpluses leading to weak interest cover ratios, Moody’s said. It added that the provider’s social housing letting interest cover ratio “will remain the lowest among rated housing associations” at an average of 0.5x over the next three years.

Poplar also faces high exposure to market sales, concentrated in two joint venture schemes in London, Moody’s noted.

Jonathan Spearing, director of finance at Poplar Harca, said: “The rating upgrade is mainly due to embedding the board’s financial control framework, enhanced covenant headroom and strong liquidity.

“We remain committed to community investment and high-quality services.”