London, 15 December 2011 -- Moody's Investors Service has today assigned an Aa3 issuer rating to Hastoe
Housing Association. The outlook on the rating is stable.
RATINGS RATIONALE
Today's rating assignment reflects Hastoe Housing Association's
(Hastoe) good and improving financial performance, which has strengthened
cash flows and eliminated structural reliance on sales to cover interest
costs. Debt levels are high compared to its peers, and Moody's
expects them to grow further to support Hastoe's ambitious development
programme, which accounts for a high share of sales.
The rating also incorporates (i) Moody's assessment of a strong regulatory
framework for English housing associations, which, despite
proposals for reform, should continue to preserve Hastoe's
financial stability; (ii) the relatively high proportion of Hastoe's
revenues derived from government subsidies, which adds to its revenue
stability; and (iii) Moody's assessment of a very high likelihood
of support from the UK government (Aaa stable) in the unlikely event of
an impending default by Hastoe.
Moody's notes that low-risk social housing letting, which
contributed the bulk of Hastoe's revenue and surplus in 2011, provides
a stable foundation for interest costs. Hastoe's operating
surplus from social housing letting has widened significantly in the past
few years and, for the second consecutive year, was sufficient
in covering total interest costs in FY2011, avoiding any reliance
on sales or any other higher-risk activities.
Hastoe carries a high and fast-growing debt burden, which
has supported the group's significant organic expansion in the past
few years. At FYE2011, Hastoe's debt was equivalent
to around 5.8x revenues and 45% of assets at cost,
which is high compared to its peers. Going forward, Moody's
expects Hastoe's debt levels to grow to around 7.5x revenues
and 55% assets, reflecting growing capital investments,
particularly in 2012-13.
Hastoe's development pipeline includes a high share of sales,
averaging 20% in 2012-16. Sales add significant risks
to projections, given ongoing uncertainty regarding housing prices
and the economy, and require tight cash-flow management across
construction and marketing. However, strong projected cash
flow from operations should provide a sufficient buffer against sales
margins below forecasts, without needing to rely on extraordinary
disposals of its existing fixed assets.
The stable outlook reflects expectations of Hastoe's good and improving
financial performance over the near term. Previous years'
investments in staffing and IT should support Hastoe's planned expansion
and contribute to a widening of its operating margins and social-housing-letting
interest coverage.
With operations widespread throughout London, the south of England
and East Anglia, Hastoe is a small provider of affordable housing,
with around 4,500 homes under management but one of the largest
rural specialists in the country.
What Could Change the Rating -- Up / Down
A stronger operating performance and more robust interest coverage,
particularly from low-risk social housing letting, along
with a reduction in debt, would be considered credit positive.
Weaker results outside of social housing letting and sales, higher-than-projected
debt and/or sustained lower coverage ratios (particularly from its social
housing letting activities) could prove negative for the rating.
The methodologies used in this rating were "English Housing Associations"
published in September 2010, and "Government-Related
Issuers: Methodology Update" published in July 2010.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
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support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
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Gianfilippo Carboni
Analyst
Sub-sovereign Group
Moody's Investors Service Ltd.
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Thomas Amenta
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Moody's assigns Aa3 rating to Hastoe Housing Association; outlook stable
