S&P downgrades L&Q’s credit rating from A- to BBB+

S&P projected that L&Q will dispose of non-core business activities including some high-margin assets and use the proceeds to reduce its debt, “thereby stabilising its debt metrics, albeit at a weak level”.

The credit ratings agency said: “L&Q plans to materially increase its investments in existing stock and sell assets to reduce its elevated debt burden.

“These measures are to address fire and safety risks, energy efficiency, as well as investments to ensure the group’s stock complies with the UK government’s Decent Homes Standards. In our view, the group’s strategy increases its reliance on fixed asset sales and external market conditions to execute its plans.”

S&P added that its stable outlook reflects its view that L&Q “will balance its step-up of investments in existing stock with plans to deleverage, such that debt metrics will remain relatively steady”.

Commenting on the report publication, Waqar Ahmed, group finance director at L&Q, said that while the G15 landlord seeks to maintain an A credit rating where it is within its control, its primary aim is “to maintain financial viability whilst ensuring residents receive the quality homes and services they deserve”.

“We have a clear plan to achieve this aim which we have already made significant progress against,” he said.

Mr Ahmed said that there is a “significant need for new social housing” to meet the scale of the housing crisis. He added that L&Q has had to make “strategic choices” in the absence of a long-term government plan for housing that delivers the funding the sector needs.

Mr Ahmed said that L&Q has adapted its business to respond to the “significant economic and regulatory challenges” the sector has faced over the past few years, while delivering “robust financial results”.

At the same time, L&Q has “clearly communicated” how it is delivering against its stated objectives to divert a greater level of expenditure towards its residents’ existing homes, to address its strategic priorities of health and safety, quality of homes and improving services, he said.

“Our c.£3bn 15-year major works programme is improving the safety, comfort and environmental performance of our residents’ homes. The programme will ensure all our homes meet the Decent Homes Standard and achieve a minimum Energy Performance Certificate C status,” Mr Ahmed said.

“In 2024, we entered into contracts for new housing and finance management systems which will create operational efficiencies, improve how we manage our data and information, and how we communicate with residents, and in particular vulnerable residents who may need different types of support.”

L&Q remains committed to lowering its risk profile, Mr Ahmed added. 

“The projected cost to complete our development pipeline continues to reduce and stood at £2.5bn in 2024 (2023: £3.1bn). This risk reduction is also reflected in sales as a percentage of turnover which fell to 35 per cent in 2024 (2023: 48 per cent),” he said.

In its unaudited results for 2023-24, L&Q reported a 27 per cent drop in annual completions as it continues to focus on spending on its existing stock, with £328m invested in its homes during the year.

“Like all housing providers, L&Q is exploring opportunities to generate additional financial capacity to invest in affordable housing including our stock rationalisation programme that seeks to divest of some homes outside our core strategic areas of Greater London and Manchester,” Mr Ahmed said.