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The secret of success: Moody's reveals reasons for housing groups' excellent credit ratings

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The secret of success: Moody's reveals reasons for housing groups' excellent credit ratings

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Published by Jon Land for 24dash.com in Housing

The secret of success: Moody's reveals reasons for housing groups' excellent credit ratings The secret of success: Moody's reveals reasons for housing groups' excellent credit ratings

Credit ratings agency Moody's has released a new report explaining why Affinity Sutton and Bromford are the highest rated housing associations in the sector.

In September 2013, Moody's reaffirmed Affinity Sutton’s rating of Aa3 (stable outlook) and baseline credit assessment of a2 - demonstrating its "strong financial position, well-diversified housing stock and experienced management team".

The Moody's Credit Focus report outlines the key drivers behind the relatively higher ratings:
• Outstanding historic performance and robust governance with a good track record of responding to change
• De-risking of new non-core activity
• Careful management of sales exposure and good track record of delivery
• Strong liquidity and good risk management

The report also notes: “Both Affinity Sutton Group and Bromford Housing Group have consistently exhibited strong financial performance and we expect this to continue.”

Mark Washer, group finance director at Affinity Sutton, said: “We put the maintenance of our robust financial profile at the heart of everything that we do, because, amongst other things, it enables us to maximise our social impact.

“It's great that Moody's continues to reflect that discipline as well as our track record, strong management and governance in our rating.”

The report points to the following reasons for the housing groups' ratings:

» Outstanding historical performance and we expect this to continue. This strong performance is demonstrated by (1) exceptionally strong and stable cash flows generating superior interest coverage; (2) ample operating margins, particularly compared to their peers; (3) stable revenues and strong liquidity positions; and (4) robust governance and management with demonstrated abilities to respond to a changing environment.
» Expansion into non-core activities de-risked by stellar social housing letting coverage. Social housing letting interest cover directly offsets the lower level of social housing letting as a percentage of revenue.
» Sales exposure is mitigated by (1) high social housing letting interest cover; (2) a track record of delivering large-scale development projects; and (3) high liquidity cushions and capacity to take on additional debt.
» Buffers against interest-rate volatility and margin calls include (1) high, immediately available liquidity levels; and (2) considerable headroom from ample unencumbered assets that can be used to meet margin calls or obtain additional funding.
» Location and size factor into their creditworthiness but are not key drivers. Both ASG and BHG are large housing associations, which is a source of credit strength. Though ASG is over twice the size of BHG and more dispersed, these factors are not dominant when looking at the overall strength of each.

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