S&P affirms Paradigm credit rating at A+, without need for government-support uplift

The South East-based association owned or managed 15,650 homes in the year ended 31 March 2021, and reported revenue of £153.4m, and pre-tax surplus of £54.1m in its accounts.  

It has a focus on social and affordable rented accommodation, with average rents set at around 60 per cent of the market rents in the areas in which it operates, S&P noted.

Paradigm aims to complete 2,250 new homes as part of its 2021-2026 development strategy, and although S&P expects units for shared ownership to increase, the plan remains “predominantly focused on the development of affordable rented units. “This further supports our expectation that revenue from sales-related activities will be limited,” it said. 

The agency’s report notes that its decision to affirm the rating reflects its expectation that the group’s costs will be “contained despite inflationary pressures, still providing headroom for the group’s increasing investments in new and existing homes”.

It added: “In our view, Paradigm’s management has extensive expertise in the sector and maintains conservative risk management standards. We view positively that after achieving savings on its business plan, the group has accommodated investments to bring forward its target to reach energy efficiency of above Energy Performance Certificate Band C on all its stock to 2030 from 2035. We think the group has scope to adjust this plan should financial developments require it.”

However, the agency expects adjusted EBITDA margins to weaken as the group “front-loads” investments on its existing stock.

“We also expect debt will increase through our forecast as Paradigm funds its development with additional borrowing,” S&P said. “However, we estimate that non-sales EBITDA interest cover will strengthen on the back of the meaningful average cost of debt reduction that the group achieved last year after refinancing part of its high interest rate debt with a bond issuance.”

The report noted that Paradigm is expected to maintain strong liquidity over the next 12 months, with an estimated sources-to-uses liquidity ratio at 2.4x.

Nicola Ewen, executive director of finance at Paradigm, said: “We are pleased that S&P has reaffirmed our A+ stable rating. Our strong operating and financial performance is supported by very strong liquidity, governance and management. Our interest cover has also improved as a result of our refinancing exercise last year. We are also pleased that our inherent rating does not now require an uplift to reflect the government support afforded to our sector.”

Update: at 09.40am, 16.05.22

This story was updated to correct the number of A+ rated providers with similar characteristics to Paradigm to nine, from eight as previously stated, and to add in detail of the other A+ credits in S&P’s portfolio.