Two G15 members and seven other HAs downgraded to V2
Nine housing associations have been downgraded to a V2 by the social housing regulator in the first wave of its ratings reconfiguration.
The "re-grades" cover a variety of organisations from across the country, from London G15 members to small regional providers.
The nine include: Acis Group; Christian Action (Enfield) Housing Association; East End Homes; Eden Housing Association; GreenSquare Group; Hyde Housing Association; Manningham Housing Association; Peabody Trust; and Wrekin Housing Group.
Meanwhile, Together Housing Group and County Durham Housing Group – both of which had seen their governance rating downgraded to a G2 – have been upgraded to G1.
The Homes and Communities Agency (HCA) is currently undertaking in depth assessments with other large associations.
The first batch of V2 changes come after the HCA wrote in Social Housing that the number of associations with a second-highest rating is set to rise by around half compared with the start of the year.
The regulator said its approach follows the latest stability checks and a forward-looking approach to risk, particularly in regard to development plans and ins some cases exposure to the market.
For some organisations, the judgements also highlight risks to financial capacity.
A V2 is the second highest available grading. It means the provider meets viability requirements and has the financial capacity to deal with a reasonable range of adverse scenarios, but that it needs to manage material risks to ensure continued compliance. A V1 meanwhile means the provider meets our viability requirements and has the financial capacity to deal with a wide range of adverse scenarios.
G15 changes
For Hyde, the regulator cited “a large and diverse development programme”.
The regulator added that Hyde is in the process of restructuring its loan portfolio “which is expected to bring long term benefits and reduce treasury management risk”.
But it added: “In 2018, however, this change results in one-off charges that it is not able to meet from the surplus on its in-year operating activities."
Peter Denton, group finance director at Hyde, completed a £760m refinancing in parent entity Hyde Housing Association yesterday (Tuesday), including restructuring £176m of derivatives.
He disagreed with the regulator’s interpretation, pointing to the net position following the restructure, saying: “Last year we posted a £98m surplus and we expect the net charge for the derivatives close out to be £27m.”
Mr Denton said the group now has almost £0.5bn of liquidity after meeting those costs, adding that Hyde "has more than sufficient resources to meet the derivatives close out”.
The regulatory review was done before the refinancing was complete
For Peabody, the HCA said the move is "on the basis of a stability check and reactive engagement carried out for the expanded group" following its merger with Family Mosaic.
A Peabody spokesperson said: “This judgement shows that we are doing what we promised when we set out our intention to merge. We are pleased the HCA recognises the sensible risk we have taken on as we increase our development pipeline, and welcome the recognition of our significant investment in Thamesmead."
V2 move
The HCA said the increase in V2s comes as this year’s stability checks “have focused on the consistency with which we take account of emerging risks, the capacity of providers’ business models to accommodate them, and the pace of change in the mix of business activities”.
It currently viability gradings for 227 HAs. Of these, 34 were V2 at the start of the year. The planned changes would take the number to over 50 by the end of the calendar year
Writing exclusively in November’s Social Housing, Fiona MacGregor, director of regulation at the HCA, says that this year’s stability check has had a particular focus on “the consistency with which we take account of these emerging risks, the capacity of providers’ business models to accommodate them and the pace of change in the mix of business activities”.
That has resulted in a number of adjustments to gradings, in some cases “to reflect poorer actual or forecast performance, or changes in the range of activities proposed”.
She adds the regulator has been signalling the changing risk profile of the sector, particularly in relation to diversification into more market-exposed activities and the ability of providers to cope with downside economic and policy risks.
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