Proposed merger with THCH unlikely to impact Hyde’s credit rating, S&P says

The potential merger will be subject to further approval by the boards of both landlords. If it goes ahead, THCH would become an operating subsidiary of Hyde once an agreement has been reached.

In a research bulletin on 29 August, which does not constitute a rating action, S&P said it saw “no immediate impact” on Hyde’s creditworthiness.

The credit rating agency said Hyde’s “large asset base and extremely strong liquidity” would probably mitigate risks from the potential business combination with THCH.

“Although we have limited information on the potential partnership at this point, public information leads us to estimate that THCH’s financial profile is substantially weaker than that of Hyde, mainly due to large remediation works on its properties,” S&P said.

Pointing to the non-compliant grading given to THCH by the RSH in March 2023, S&P said: “The regulator highlighted that THCH has no capacity to sustain its operations and carry out the needed investments on its properties.

“That said, we expect that Hyde’s extremely strong liquidity position and large asset base – of close to 45,000 units relative to THCH’s approximately 3,200 – would largely mitigate risks associated with the business combination.

“In our view, Hyde should have flexibility to scale down or phase out investments in existing and new homes if needed, while its liquidity position provides strong buffers to absorb THCH’s weaker performance.

“Furthermore, we expect that Hyde would address any of THCH’s weak governance practices, which RSH also highlighted.”

Hyde did not wish to comment on S&P’s opinion.

When the merger proposals were announced, Andy Hulme, chief executive of Hyde, said: “THCH provides homes in a thriving and diverse part of east London, neighbouring areas where we operate ourselves. It’s a great organisation that shares our commitment to customers and communities. 

“We’re at early stages of our conversations with the THCH team. There’s no change expected for existing customers, and we’ll keep people updated as we move forwards.”

Hyde has an A rating with S&P, with a negative outlook, after the agency downgraded the G15 landlord one notch in July last year.

At the time, S&P said this was because of a weaker financial performance as a result of increased investment in its existing stock and lower margins from sales activities.

In June this year, Karin Erlander, director of international public finance ratings at S&P, said the agency believed the social housing sector would remain in the A credit rating category.

She also said the sector would benefit from a “firm, long-term” rent settlement. This could come to fruition, with reports that the chancellor is set to introduce a 10-year rent settlement linked to inflation.