S&P affirms ‘A’ credit rating of sector funding aggregator THFC

But while the agency said that THFC’s diversified customer base reduces the risk of revenue concentration, the increase in housing associations opting to access the markets directly means that the aggregator “will find it harder to attract new customers at the same pace as in previous years”.

However it added that management has “above-average levels of expertise and experience” and that unlike other UK-based public sector funding agencies, THFC has board nominees from the Regulator of Social Housing and the National Housing Federation.

The ratings are given a stable outlook, which S&P said is an indication that THFC will “continue to fulfil its public policy mandate and to maintain a relevant role in the market”.

The group also launched its new £2bn Euro Medium-Term Note (EMTN) programme via its Blend subsidiary last year, offering some alternative terms and flexible funding options compared with its traditional platform.

THFC as a whole has “very strong capitalisation and strong liquidity”, according to S&P. Its rating could fall if the credit quality in the UK social housing sector as a whole deteriorates significantly, or the asset quality of THFC’s loan portfolio significantly weakens.

With the close of the government’s housing guarantees programme, AHF’s initial underwriting phase ended last year, with net lending falling from £1.1bn in 2018 to £348m in the financial year ending 31 March 2019.

The UK government has since decided to launch a new £3bn Affordable Homes Guarantees Scheme, for which it will need to procure a delivery partner.

S&P said that THFC, meanwhile, provided around three per cent of the sector’s funding during the financial year ending March 2019.

The ratings agency said in its report: “Even though housing associations have increasingly accessed the capital markets directly over the past year, we expect THFC to retain a solid business position and its conservative risk management policies to support its strong capital levels and liquidity position.”

As of March 2019, the group’s consolidated lending portfolio was £7.3bn, with around half the loan book in AHF and guaranteed by the government.

Since then, the aggregator has tapped its existing bond, THFC (Funding No 3), for £13.5m at a reoffer yield of 2.41 per cent for two borrowers: Harrogate Housing Association and Newport City Homes.

The £1.5m, 25-year funding for Harrogate was a “top-up to an existing THFC loan, using surplus security already pledged to THFC”.

The group then tapped its Blend bond for £20m for existing borrower Wales & West Housing.

The funding tranche was more than double subscribed, including one new sovereign fund investor. The deal was done at a reoffer yield of 2.39 per cent.

Piers Williamson, chief executive of THFC, said that the deals represent THFC “getting back to its roots… supporting small housing associations developing badly needed affordable homes in their local communities and at some of the lowest borrowing rates we have achieved in our 32-year history”.