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Rating Action:

Moody's changes outlooks on 52 UK sub-sovereigns to negative from stable; ratings affirmed

29 Jun 2016

Note: On June 29, 2016, the list of affected credit ratings accessible via hyperlink from this press release was updated to reflect the correct publication date for the English Housing Associations methodology.

London, 29 June 2016 -- Moody's Public Sector Europe (MPSE) has today taken rating actions on 55 UK sub-sovereign entities (and associated 30 SPVs) covering the following sectors: (1) Local Authorities; (2) Transport for London; (3) Universities; (4) Housing Associations; (5) PRS Finance plc. The actions follow a referendum vote in favour of the UK leaving the European Union (EU) and the recent change in the outlook on the UK's Aa1 government bond rating to negative from stable. For more details on the sovereign outlook change, please refer to Moody's press release: http://www.moodys.com/viewresearchdoc.aspx?docid=PR_350566.

Moody's has changed the outlooks to negative from stable and affirmed the ratings of 82 entities. It has also affirmed the Baa1 rating and maintained the negative outlook for Poplar HARCA, affirmed the Aaa rating and maintained the stable outlook on the University of Cambridge and affirmed the (P)Aa1 rating on PRS Finance plc.

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_190695 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_190695 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

• Methodologies

OVERALL RATIONALE FOR NEGATIVE OUTLOOK ON 52 UK SUB-SOVEREIGNS

The outlook change on the ratings of 52 UK sub-sovereign issuers and associated SPVs reflects Moody's assessment of the impact of the UK vote to leave the European Union along with the change in the outlook of the UK's Aa1 sovereign rating to negative from stable, which has direct implications for sub-sovereign entities given the economic, financial and institutional linkages between the sovereign and sub-sovereign sectors.

ECONOMIC AND FINANCIAL: Moody's believes that there will be a prolonged period of uncertainty following the "leave" vote, which will weigh on the UK's economic and financial performance. A downturn in the economic outlook in the UK has direct implications for UK sub-sovereign budgets through (1) potential slowing or declining transfers received from the central government, which make up a significant share of their revenue; and (2) further potential austerity measures included in the government's next Budget and next Spending Review.

INSTITUTIONAL: The UK national government retains a high degree of control over the sub-sovereign sector via legislation and the different regulatory frameworks in place. The ability of central government to provide oversight or stable policy direction for public sector entities may be compromised as the sovereign's institutional capacity is diverted to deal with the implications of the UK's departure from the EU.

Sector-specific rationales for (1) Local Authorities; (2) Transport for London; (3) Universities; (4) Housing Associations; and (5) PRS Finance plc are provided below.

1) RATIONALE FOR THE AFFIRMATION AND NEGATIVE OUTLOOK ON LOCAL AUTHORITIES

The affirmation of the ratings and change in the outlooks to negative from stable of four local authorities (Cornwall Council, Guildford Borough Council, Lancashire County Council and Warrington Borough Council) reflects the impact of the growing systemic risk on local authorities (LAs) following the outlook change on the sovereign rating to negative from stable. This largely reflects the close institutional, operational and financial linkages between the central government and LAs.

WHAT COULD MOVE THE RATINGS UP/DOWN

Whilst unlikely in the near term, upward pressure on the ratings for the four rated LAs could result from a significant and sustained improvement in the individual LA's financial position, including substantial decreases in the debt burden. Furthermore, materially improved revenue and spending flexibility could also put upward pressure on the ratings.

A weakening of the UK government's credit profile as reflected by a downgrade of the sovereign rating would likely translate into a downgrade of the local authority ratings. At the same time, further significant reductions in government expenditure without offsetting revenues or savings, leading to widening financing deficits and a substantial increase in debt metrics, or a weakening of the relationship with the central government, including the Public Works Loan Board (PWLB), which provides funding for local authorities, would all result in negative pressure on the credit profiles of LAs.

2) RATIONALE FOR THE AFFIRMATION AND NEGATIVE OUTLOOK ON TRANSPORT FOR LONDON (TfL)

The affirmation of the ratings and outlook change to negative from stable of Transport for London reflects the potential impact of the vote to leave the European Union on the revenues of TfL, which would be affected by slowing growth in the economy and population in London as well as any loss of EU funding for capital programmes. The outlook change mirrors the outlook change on the sovereign rating to negative from stable, reflecting the close institutional, operational and financial linkages between the central government and TfL. TfL's P-1 short-term rating was affirmed.

WHAT COULD MOVE THE RATINGS UP/DOWN

Whilst unlikely in the near term, there could be upward pressure on the rating in the following instances: a significant and sustained improvement in TfL's financial position, including a substantial decrease in its debt burden and lower interest payments. Furthermore, materially improved revenue and spending flexibility or an upgrade of the UK sovereign rating could also put upward pressure on the rating.

Downward pressure could result from TfL's under-performance in meeting operational or financial goals, specifically if fare revenue growth is materially slower than projected levels, new revenue sources fail to contribute to the revenue gap or planned expenditure savings do not materialise. Further, if the UK government were to signal a clear dilution of its support for TfL's capital plan or the UK sovereign rating were to be downgraded, this would also put downward pressure on the rating given the strong linkages in funding and support of the sovereign.

3) RATIONALE FOR THE AFFIRMATION AND NEGATIVE OUTLOOKS ON UNIVERSITIES

The affirmation of the ratings and outlook change to negative from stable of six UK universities (Cardiff University, De Montfort University, Keele University, University of Leeds, The University of Liverpool and The University of Manchester) reflects the potential impact of the vote to leave the European Union on the universities, which would be affected by potential loss of EU funding for research as well as any immigration curbs affecting student demand and staffing. The negative outlook also mirrors the negative outlook on the sovereign rating, reflecting the close institutional, operational and financial linkages between the central government and UK universities.

RATIONALE FOR AFFIRMING THE UNIVERSITY OF CAMBRIDGE'S Aaa RATING AND STABLE OUTLOOK

Moody's decision to affirm the University of Cambridge's Aaa rating with stable outlook reflects the institution's extraordinarily strong market position, higher revenue diversification, significant liquid assets, strong governance structure and low debt levels. Given the University of Cambridge's strong credit profile, the stable outlook on the Aaa rating reflects Moody's assessment that this entity is not as exposed to the risks from the vote to leave the European Union and the negative outlook on the sovereign rating to the same degree as its rated peers.

WHAT COULD MOVE THE RATINGS UP/DOWN

Whilst unlikely in the near term, an improvement in the UK government's credit profile, as reflected by an upgrade of the sovereign, would exert upward pressure on university ratings. Furthermore, the ratings on the six universities with negative outlooks could also face upward pressure if they were to significantly strengthen their market positions, as reflected in strongly improving student demand trends, receiving significantly more research grant revenues, enhanced fundraising and growing financial reserves and liquidity.

A weakening of the UK government's credit profile, as reflected by a downgrade of the sovereign rating, would likely translate into a downgrade of the ratings of the six universities with negative outlooks. In addition, reductions in government expenditure on higher education, a dilution in regulatory framework and the likelihood of timely government support, or a worsening in student numbers would all result in negative pressure being exerted on the universities' credit profiles.

Whilst considered unlikely in the near term for the University of Cambridge, a sustained deterioration in the value of its endowment funds or a significant increase in borrowing outpacing revenue and resource growth could exert downward pressure on the rating.

4) RATIONALE FOR THE AFFIRMATION AND NEGATIVE OUTLOOKS ON HOUSING ASSOCIATIONS

The affirmation of the ratings and outlook change to negative from stable on 41 UK housing associations and associated 29 SPVs (see list of affected entities) reflects the potential impact of the vote to leave the European Union on the associations. Housing associations (HAs) could be affected by renewed pressure on public finances resulting in further policies that would squeeze HA revenues and any further social housing policy changes exacerbating the policy instability that currently underpins our negative outlook on the sector. In addition, the potential loss of EU funding as well as volatility in the UK housing market could constrain the creditworthiness of the sector. The outlook changes also reflect the change in the outlook of the sovereign rating to negative from stable, reflecting the close operational linkages between the central government and HAs. The negative outlook on Poplar HARCA's Baa1 rating was maintained and rating affirmed, reflecting idiosyncratic features as well as the negative outlook on the rest of the sector. Places for People Homes Limited and Places for People Capital Markets Plc's (P)P-1 short-term ratings were affirmed.

WHAT COULD MOVE THE RATINGS UP/DOWN

Moody's believes that upward ratings pressure on the HAs affected by today's action is unlikely to develop in the near term in view of the challenging operating environment and weakened sovereign credit conditions. Strengthening credit metrics of standalone credit profiles, however, could put upward pressure on individual ratings.

Downward ratings pressure on the affected HAs would be prompted by a weakening of the UK government's credit profile, as reflected by a downgrade of the sovereign rating. Additionally, any sector or issuer-specific risks emerging in this context would exacerbate downward ratings pressures.

5) RATIONALE FOR THE AFFIRMATION OF THE RATING ON PRS FINANCE PLC

The affirmation of the (P)Aa1 rating on PRS Finance plc's GBP3.5 billion Guaranteed Secured Bond Programme (the "Programme") reflects the affirmation of the Aa1 UK sovereign rating. The (P)Aa1 rating on PRS Finance plc is based solely upon the unconditional and irrevocable guarantee of scheduled principal and interest on the bonds secured under the Programme to be provided by the Secretary of State for Communities and Local Government ("DCLG").

WHAT COULD CHANGE THE RATING UP/DOWN

The guaranteed debt rating is fundamentally linked to the sovereign rating of the UK Government. Consequently, any change in the rating of the UK Government would be expected to translate into a rating change on the bonds issued under the Programme. If the obligations of DCLG were to be transferred to another public or governmental body then the rating would reflect Moody's assessment of the credit quality of that entity.

PUBLICATION OF RATING ACTIONS ON LOCAL AUTHORITIES

The referendum outcome to leave the EU required the publication of this credit rating action on Cornwall County Council, Guildford Borough Council, Lancashire County Council and Warrington Borough Council on a date that deviates from the previously scheduled release date in the sovereign release calendar, published on www.moodys.com.

The specific economic indicators, as required by EU regulation, are not available for these entities. The following national economic indicators are relevant to the sovereign rating, which was used as an input to this credit rating action.

Sovereign Issuer: United Kingdom, Government of

GDP per capita (PPP basis, US$): 41,159 (2015 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 2.3% (2015 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 0.2% (2015 Actual)

Gen. Gov. Financial Balance/GDP: -4.4% (2015 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: -5.2% (2015 Actual) (also known as External Balance)

External debt/GDP: [not available]

Level of economic development: Very High level of economic resilience

Default history: No default events (on bonds or loans) have been recorded since 1983.

SUMMARY OF MINUTES FROM RATING COMMITTEE

On 27 June 2016, a rating committee was called to discuss the ratings of Cornwall Council, Guildford Borough Council, Lancashire County Council and Warrington Borough Council. The main points raised during the discussion were: The issuer's fiscal or financial strength, including its debt profile, has materially decreased.

The methodologies used in rating Affinity Sutton Group Ltd, Affinity Sutton Capital Markets plc, AmicusHorizon Limited, AmicusHorizon Finance PLC, B3 Living Limited, Bromford Housing Group, Circle, Circle Anglia Social Housing 2 Plc, Circle Anglia Social Housing Plc, Cottsway Housing Association Limited, Devon and Cornwall Housing Limited, East Thames Group Limited, East Finance Plc, Family Mosaic, Flagship Housing Group Limited, Grand Union Housing Group, Grand Union Group Funding plc., Great Places Housing Group, Hanover Housing Association, Hastoe Housing Association, Hastoe Capital Plc, Herefordshire Housing Limited, Herefordshire Capital Plc, London & Quadrant Housing Trust, L&Q Group, Longhurst Group Ltd, Libra (Longhurst Group) Treasury Plc, Midland Heart, Midland Heart Capital plc, Moat Homes, Moat Homes Finance Plc, Newlon Housing Trust, Notting Hill Housing Group, Notting Hill Housing Trust, Orbit Group Limited, Orbit Capital Plc, Paragon Community Housing Group Ltd, Paragon Treasury Plc, Peabody Trust, Peabody Capital No 2 plc, Peabody Capital Plc, Places for People Homes Limited, Places for People Capital Markets PLC, Poplar HARCA, Poplar HARCA Capital Plc, Radian Group Limited, Radian Capital Plc, Riverside Group, Riverside Finance Plc, Saffron Housing Trust, Saffron Housing Finance Plc, Sanctuary Capital Plc, Sanctuary Housing Association, Saxon Weald Homes Ltd, Saxon Weald Capital plc, Southern Housing Group Limited, Sovereign Housing Association, Sovereign Housing Capital, PLC, Stonewater Limited, Stonewater Funding plc, The Guinness Partnership Ltd., Together Housing Group, Together Housing Finance Plc, WM Housing Group, WM Treasury Plc, Walsall Housing Group Ltd, WHG Treasury plc, Yarlington Housing Group, Yorkshire Housing Limited, Yorkshire Housing Finance plc and New Charter Housing Trust Ltd were English Housing Associations published in October 2013, and Government-Related Issuers published in October 2014.

The principal methodologies used in rating Cardiff University, De Montfort University, Keele University, The University of Liverpool, The University of Manchester, University of Cambridge and University of Leeds were Global Higher Education published in November 2015, and Government-Related Issuers published in October 2014.

The methodologies used in rating Transport for London was Global Mass Transit Enterprises Methodology published in February 2015, and Government-Related Issuers published in October 2014.

The principal methodology used in rating Cornwall Council, Guildford Borough Council, Lancashire County Council and Warrington Borough Council was Regional and Local Governments published in January 2013.

The principal methodology used in rating Pennaf Housing Group was Government-Related Issuers published in October 2014.

The principal methodology used in rating PRS Finance plc was Sovereign Bond Ratings published in December 2015.

Please see the Ratings Methodologies page on www.moodys.com for a copy of these methodologies.

The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

REGULATORY DISCLOSURES

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_190695 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

• Domicile

• Lead Analyst

• Person Approving the Credit Rating

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jennifer A. Wong
Vice President - Senior Analyst
Sub-Sovereign Group
Moody's Investors Service EMEA Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

David Rubinoff
MD-Sub-Sovereigns
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service EMEA Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's changes outlooks on 52 UK sub-sovereigns to negative from stable; ratings affirmed
No Related Data.
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