London, 25 April 2016 -- Moody's Public Sector Europe , ("MPSE"), has assigned an A1 rating to the proposed senior secured GBP250 million bond issuance of London & Quadrant Housing Trust, the parent company of L&Q Group (A1, stable).
RATINGS RATIONALE
The proposed bonds are anticipated to have a long-dated (around 10 years) maturity. The issuance is expected to be comprised of GBP250 million in total. The bond will be immediately secured by a portfolio of social housing properties owned by London & Quadrant Housing Trust. The total estimated value of the security is GBP357 million, consisting of properties valued at both Estimated Use Value -- Social Housing (EUV-SH) at 1.05x and Market Value Subject to Tenancy (MV-ST) at 1.15x. Moody's views this threshold of asset coverage as offering limited enhancement for bondholders and as insufficient to lift the ratings of the bonds over that of the Group itself.
The debt rating assigned to the bonds issued by London & Quadrant Trust is derived from the credit quality of L&Q Group as the issuer is the asset-holding, parent company of L&Q Group. The proceeds from the bond issuance will be used to fund L&Q Group's ambitious growth strategy as well as refinance existing facilities. L&Q Group is one of the largest providers of social housing in England, with more than 71,000 units in management centred in London and the South East of England.
On April 6th, 2016 L&Q Group announced its intention to merge with two London-based housing associations: Hyde Group and East Thames Group Limited (A3, stable). The combined entity would manage 135,000 homes, making it one of the largest social landlords in England. Additionally, the merger announcement included plans for an ambitious development target of 100,000 homes over ten years. It is estimated that efficiency savings of GBP50 million per year would be achieved within five years of the formation of the new entity. L&Q Group expects the merger to complete by the end of 2016.
L&Q Group is undertaking due diligence and the boards have not yet agreed on a combined business plan, which will provide further clarity on the strategic direction and financial position of the new entity. However, we note that all three organisations are characterised by ambitious development plans and a high (>20% of turnover) exposure to market sales activity and that East Thames Group Limited (A3, stable) has a weaker credit profile than L&Q Group. With development aspiration as announced for the new entity exceeding that of the individual entities combined, if pursued without effective controls or if financial performance deteriorates, the additional development risk could be credit negative for L&Q. The rating assigned to this bond issuance of London & Quadrant Housing Trust reflects the financial position and projections of L&Q Group as a standalone entity.
The rating assigned to the proposed GBP250 million is based on documentation received by MPSE as of the rating assignment date. In the event that the structures change from the documentation submitted to us, we will assess the impact that these differences may have on the ratings.
WHAT COULD CHANGE THE RATING --- UP/DOWN
Any change to L&Q Group's issuer rating would result in a corresponding change to London and Quadrant Housing Trust's senior secured debt ratings.
The principal methodology used in this rating was English Housing Associations published in October 2013. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
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.
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.
Resource: https://www.moodys.com
RATINGS RATIONALE
The proposed bonds are anticipated to have a long-dated (around 10 years) maturity. The issuance is expected to be comprised of GBP250 million in total. The bond will be immediately secured by a portfolio of social housing properties owned by London & Quadrant Housing Trust. The total estimated value of the security is GBP357 million, consisting of properties valued at both Estimated Use Value -- Social Housing (EUV-SH) at 1.05x and Market Value Subject to Tenancy (MV-ST) at 1.15x. Moody's views this threshold of asset coverage as offering limited enhancement for bondholders and as insufficient to lift the ratings of the bonds over that of the Group itself.
The debt rating assigned to the bonds issued by London & Quadrant Trust is derived from the credit quality of L&Q Group as the issuer is the asset-holding, parent company of L&Q Group. The proceeds from the bond issuance will be used to fund L&Q Group's ambitious growth strategy as well as refinance existing facilities. L&Q Group is one of the largest providers of social housing in England, with more than 71,000 units in management centred in London and the South East of England.
On April 6th, 2016 L&Q Group announced its intention to merge with two London-based housing associations: Hyde Group and East Thames Group Limited (A3, stable). The combined entity would manage 135,000 homes, making it one of the largest social landlords in England. Additionally, the merger announcement included plans for an ambitious development target of 100,000 homes over ten years. It is estimated that efficiency savings of GBP50 million per year would be achieved within five years of the formation of the new entity. L&Q Group expects the merger to complete by the end of 2016.
L&Q Group is undertaking due diligence and the boards have not yet agreed on a combined business plan, which will provide further clarity on the strategic direction and financial position of the new entity. However, we note that all three organisations are characterised by ambitious development plans and a high (>20% of turnover) exposure to market sales activity and that East Thames Group Limited (A3, stable) has a weaker credit profile than L&Q Group. With development aspiration as announced for the new entity exceeding that of the individual entities combined, if pursued without effective controls or if financial performance deteriorates, the additional development risk could be credit negative for L&Q. The rating assigned to this bond issuance of London & Quadrant Housing Trust reflects the financial position and projections of L&Q Group as a standalone entity.
The rating assigned to the proposed GBP250 million is based on documentation received by MPSE as of the rating assignment date. In the event that the structures change from the documentation submitted to us, we will assess the impact that these differences may have on the ratings.
WHAT COULD CHANGE THE RATING --- UP/DOWN
Any change to L&Q Group's issuer rating would result in a corresponding change to London and Quadrant Housing Trust's senior secured debt ratings.
The principal methodology used in this rating was English Housing Associations published in October 2013. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
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.
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.
Resource: https://www.moodys.com
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