In this article, S&P Global Ratings provides comparative statistics for the 62 rated social housing providers (SHPs) in the U.K. (42), Germany (9), Sweden (4), France (4), Canada (1), Netherlands (1), and New Zealand (1).

Over the past 12 months, the number of rated SHPs has edged down to 62 from 63. We assigned two new ratings in Germany and withdrew one rating in Australia at the issuer's request and one in the U.K. following a merger. In addition, one U.K.-based SHP became a subsidiary of another. We took 27 rating actions over the same period, mainly due to economic and regulatory conditions that continue to put pressure on the creditworthiness of the non-U.S. SHPs.

The rating actions have predominantly been on the U.K. SHPs. We saw eight downgrades, two of which were on the same SHP, and revised two outlooks to negative. We had two upgrades, one of which was due to the SHP becoming a subsidiary of another SHP. We also had two outlook revisions to positive from stable, and three outlook revisions to stable from negative. We placed two ratings on CreditWatch with negative implications, both due to proposed mergers. We resolved one of these by affirming the rating with a stable outlook when the merger talks ceased, and the other by withdrawing the rating when the merger completed.

In France, we had an upgrade and a downgrade, while two SHPs have negative outlooks linked to the negative outlook on France (see "France Outlook Revised To Negative On Rising Budgetary Risks; 'AA/A-1+' Ratings Affirmed," published Dec. 2, 2022). We revised the outlooks to negative from stable on a German and a Swedish SHP due to pressure on their respective financial indicators.

While we still think that our ratings on the non-U.S. SHPs are likely to remain largely within the 'A' category, there is a slight bias toward the weaker end (see chart 1). There is also a large proportion of negative outlooks (30%), four of which are on 'A-' ratings, so there is a risk that we could downgrade more SHPs to the 'BBB' category over the next two years (see chart 2).

Ten of the 26 U.K. SHPs that we rate at 'A' or above have negative outlooks, and so we could see ratings slip among this group. This could be the case if, contrary to our expectations, inflation and interest rates remain persistently high over the next two fiscal years, and management is unable to take corrective measures (see "U.K. Social Housing Providers' Credit Headroom Could Tighten If The Operating Environment Deteriorates," published Oct. 4, 2023).

Of the non-U.S. SHP ratings, 65% have a stable outlook, which is an improvement from March 2023, when we last published our ratings risk indicators, and when only 60% had a stable outlook (see chart 2). The addition of ratings with a stable outlook has reduced the negative bias somewhat, and two outlook revisions to stable from negative in the U.K. occurred alongside downgrades.

Following a negative outlook revision on the U.K. just over a year ago, we revised the outlooks on eight SHPs to negative. While we revised the outlook on the U.K. back to stable on April 21, 2023, we lowered the ratings on three of the eight SHPs due to weaker intrinsic creditworthiness. We revised the outlooks on two others to stable to reflect strengthening financial indicators. We have kept the negative outlooks on the remaining three U.K. SHPs, reflecting our view that large investments in their existing homes, higher interest rates, and cost inflation could weaken their financial indicators beyond our expectations.

Only two of the outlook revisions back to stable from negative among the U.K. SHPs reflected stronger financial indicators, supporting a more positive reassessment of their management and governance. This, in turn, led to an upward revision of their stand-alone credit profiles (SACPs) and, in one case, an upgrade. Because of the pressures across the sector, we believe that SHPs' management and governance practices are increasingly important to ensure solid financial performance, cash flow generation, and debt metrics, as well as the long-term viability of the business.

Chart 1

Chart 2

Below, we provide comparative statistics for each rating, showing how our assessment of financial performance, the debt profile, and liquidity correlate with the different ratings.

We consider that a non-U.S. SHP's financial performance, measured by the consolidated group's S&P Global Ratings-adjusted EBITDA margin, is a solid indicator of creditworthiness and underpins the rating (see chart 3). Non-U.S. SHPs rated 'AA-' typically have adjusted EBITDA margins of close to 35%, gradually declining to an average of just over 20% for the 'A-' rated entities. However, the difference between the lowest and highest adjusted EBITDA margins at each rating increases with the rating.

Chart 3

The stronger the SHPs' debt metrics, the greater the likelihood of them having a higher rating (see chart 4). Most 'AA-' rated entities have a debt-to-nonsales adjusted EBITDA ratio of 15x or below, gradually deteriorating to about 25x for entities rated 'A-', and to more than 35x on average for entities rated in the 'BBB' category. Equally, the 'AA-' rated entities have very strong adjusted nonsales EBITDA interest coverage of 4.5x on average, typically because their debt funding comes from their respective government and local authority at low interest rates. The interest coverage ratio falls to 1.2x for entities rated at the lower end of the 'A' category, and below 1.0x on average for the group of entities rated in the 'BBB' category.

Chart 4

Our assessment of the SHPs' liquidity ratios does not have the same correlation with the ratings as the debt ratios (see chart 5). This is mainly because the entities that we rate 'AA-' typically have lower liquidity coverage, offset by strong ties with their respective government or local authority, which either provides ongoing liquidity support, or would likely provide extraordinary support in a case of need. Otherwise, liquidity coverage remains solid across our non-U.S. SHPs, supported by an average liquidity ratio of 2x, unchanged since March 2023.

Chart 5

Table 1 contains our ratings and outlooks on SHPs, as well as indicators for our assessment of their market dependencies, financial performance, debt profiles, and liquidity. We calculate the ratios as a five-year average, including two historical years, the current year, and two forecasted years. The data is as of Oct. 31, 2023.

Because non-U.S. providers of social housing have a public policy role and strong ties with governments, the issuer credit ratings on these entities combine our assessment of an SACP and the likelihood of extraordinary government support. In the case of SHPs, the application of our criteria for government-related entities (GREs) may raise the final issuer credit rating relative to the SACP. (For more detail on our GRE methodology, see "Rating Government-Related Entities: Methodology And Assumptions," published March 25, 2015.)

Table 1

Related Criteria

• Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
• Methodology For Rating Public And Nonprofit SHPs, June 1, 2021
• Group Rating Methodology, July 1, 2019
• Rating Government-Related Entities: Methodology And Assumptions, March 25, 2015
• General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
• Stand-Alone Credit Profiles: One Component Of A Rating, Oct. 1, 2010

Related Research

• Regulatory Framework Assessment: Social Housing Providers In The U.K. Benefit From Strong Regulatory Frameworks, Oct. 23, 2023
• United Kingdom 'AA/A-1+' Ratings Affirmed; Outlook Stable, Oct. 20, 2023
• U.K. Social Housing Providers' Credit Headroom Could Tighten If The Operating Environment Deteriorates, Oct. 4, 2023
• Regulatory Framework Assessment: German Public Housing Providers Face Increasing Political Demands But Benefit From Strong Institutions, Oct. 3, 2023
• Regulatory Framework And Systemic Support Assessments For Nonprofit Social Housing Providers, Sept 08, 2023
• European Housing Markets: Sustained Correction Ahead, July 20, 2023
• Freeze On Livret A Rate Should Boost French Social Housing Providers’ Credit Metrics, July 17, 2023
• Regulatory Framework Assessment: Social Housing Providers In France, May 30, 2023
• United Kingdom Revised To Stable From Negative On Moderating Fiscal Risks; ‘AA/A-1+’ Ratings Affirmed, April 21, 2023
• U.K. Social Housing Borrowing 2023: On Pause, March 28, 2023
• Non-U.S. Social Housing Providers Ratings Score Snapshot: March 2023, March 27, 2023
• Non-U.S. Social Housing Providers Ratings Risk Indicators: March 2023, March 27, 2023
• Non-U.S. Social Housing Providers Ratings History: March 2023, March 27, 2023
• U.K. Social Housing Providers Set Their Sights On Cyber Risks, Dec. 16, 2022
• France Outlook Revised To Negative On Rising Budgetary Risks; 'AA/A-1+' Ratings Affirmed published Dec. 2, 2022
• Non-U.S. Social Housing Sector Outlook 2023: The Most Negative Bias Since 2018 Implies Significant Pressure On Ratings, Dec. 1, 2022
• Cap On Rent Increases Is Consistent With Our Base Case For English Social Housing Providers, Nov. 17, 2022
• U.K. Social Housing Sector Now Displays A More Pronounced Negative Bias In Its Creditworthiness, Oct. 11, 2022
• Launch Of Rent Cap Consultation Adds Uncertainty To Creditworthiness Across English Housing Sector, Sept. 1, 2022
• Rated U.K. Social Housing Providers' Creditworthiness Could Suffer If The Gap Between Rent And Cost Increases Persists, Aug. 1, 2022
• France’s Purchasing Power Bill Would Further Constrain Financials Of Departments But Not Social Housing Providers, July 11, 2022
• Credit FAQ: French Social Housing Providers' Creditworthiness Should Remain Robust Despite Higher Capex Pressure, Feb. 14, 2022