Sector should retain average ‘A’ credit rating helped by ‘management actions’

Abril Canizares, credit analyst at S&P Global Ratings, said: “Our sensitivity analysis shows that, should inflationary pressure persist, and interest rates remain high or investment needs continue to rise, many housing providers would find it challenging to maintain an interest coverage level commensurate with the current rating level.”

But the agency said that continued high inflation and interest rates would be “contrary” to its expectations.

S&P said that housing associations with intrinsic creditworthiness at or above ‘BBB+’ would be more resilient to withstand more adverse conditions, although headroom is tightening.

Fifteen out of the 43 landlords S&P currently rates are on a ‘negative’ outlook, with one on CreditWatch with negative implications.

For those at ‘BBB’ or below, the expected recovery by fiscal 2025 might become more challenging, the report said.

But S&P concluded: “We have seen across rated entities greater disposal of non-strategic assets as a funding source and reduced reliance on debt funding under relatively high interest rates. All of this underpins our view that our rated portfolio can sustain an average ‘A’ rating.”

Last month a report from Moody’s said that housing associations risk weakening their credit quality, as they rely mostly on debt to meet energy efficiency targets.