08.11.2012 09:00
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WM Housing Group -- Moody's assigns Aa3 rating to WM Housing Group; outlook negative

London, 08 November 2012 -- Moody's Investors Service has today assigned an Aa3 issuer rating to WM Housing Group (WMH) with negative outlook.

The negative outlook on WMH's issuer rating is in line with the outlook on the UK sovereign ratings, given WMH's strong financial, operational and economic linkages with the central government.

RATINGS RATIONALE

Today's rating assignment reflects the strong, but weakening cash flows that WMH generates from a robust foundation of low-risk social-housing letting and limited sales.

The rating also incorporates Moody's assessment of a strong regulatory framework for English housing associations, and the high proportion of revenue that WMH derives from government subsidies, which adds to its revenue stability.

However, Moody's notes that the rating is constrained by the expected increase in WMH's debt levels from a low base in order to support future capex and a planned debt restructuring. The latter is meant to lift legacy restrictions on governance from recent acquisitions.

As per the application of Moody's Joint Default Analysis methodology for government-related issuers, WMH's baseline credit assessment (BCA) has been set at baa2. The final Aa3 rating reflects the uplift provided by Moody's assessment of a very high likelihood of support from the UK government (Aaa negative) in the unlikely event of WMH experiencing acute liquidity stress.

Moody's notes that low-risk social-housing letting generated 92% of WMH's revenue in 2012, contributing to a social-housing-letting interest coverage of 1.7x. As a result, WMH has avoided a structural reliance on higher-risk activities or sales to cover its interest costs. Moody's notes that WMH's sales are anticipated to grow to 5% of revenues in 2013, from 3% in 2012, which is low relative to its peers.

At FYE 2012, WMH's debt was GBP350 million, which is equivalent to around 3.4x revenues and 46% of assets at cost; this is low compared to that of its peers. WMH aims to issue fixed-rate 30-year bonds in late 2012 and to use the proceeds for new development and refinancing. As a result of the bond, debt is anticipated to grow to around 4.0/4.5x revenue in 2013. WMH inherited some restrictions on its governance following its 2008 acquisition of Whitefriars and more recently in 2012 of Optima. With the bond restructuring, WMH will remove the majority of the restrictions with respect to Whitefriars

WHAT COULD CHANGE THE RATING -- UP / DOWN

Whilst unlikely in the near term given WMH's rising debt levels and existing governance constraints, one of the following could have positive rating implications: (1) a recurrent cash-interest coverage that structurally exceeds 2x and a social-housing-letting interest coverage above 1.5x; (2) debt levels that fall below 3.5x revenue; and (3) the lifting of existing governance constraints on legacy debt.

Negative pressure could be exerted on the rating by (1) cash-flow exposure beyond current projections, with a reliance on liquidity to cover interest costs; (2) higher-than-projected sales; (3) sustained increase in debt levels exceeding 4.5x revenue. Additionally, a weaker regulatory framework, a dilution of the overall level of support from the UK government, or a downgrade of the UK sovereign rating would also exert downward pressure on the rating.

With operations spread across the West Midlands, WMH is a large provider of social housing in England with around 25,000 homes under management.

PRINCIPAL METHODOLOGIES

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.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the 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, 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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Gianfilippo CarboniAsst Vice President - Analyst Sub-sovereign Group Moody'sInvestors Service Ltd. One Canada SquareCanary WharfLondon 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 Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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