OREANDA-NEWS. S&P Global Ratings said today that it lowered its long-term issuer credit rating on U. K.-based social housing provider Hyde Housing Association (Hyde) to 'A+' from 'AA-'. At the same time, we placed the rating on CreditWatch with negative implications.

We also lowered our issue rating on ?250 million of senior secured debt issuedby Hyde to 'A+' from 'AA-' and placed this rating on CreditWatch negative.

The downgrade follows Hyde's intention to pull out of the planned merger between itself, London & Quadrant Housing Trust, and East Thames. Our former base case factored in the merger as positively supporting Hyde's rating. Therefore, the downward pressures on the entity's financial profile as a stand-alone entity were counterbalanced by the strengths of the merged entity. We believe that Hyde, on a stand-alone basis, will have satisfactory access toexternal liquidity. Previously, we factored in our assessment that the merged entity will have strong access to deep and liquid capital markets as well as access to a diversified pool of domestic and international banks.

The CreditWatch negative placement reflects our plan to evaluate the effect ofthe cancellation of the planned merger on Hyde's business strategy, its capital plans, and on our assessment of management and governance. In addition, we will be reviewing Hyde's financial profile in relation to risk exposure--particularly to sales and market-driven activities such as outright sales, shared ownership, and its private rental portfolio--as a stand-alone entity.

The 'A+' rating on Hyde, the parent of the entities forming the Hyde group, isbased on its stand-alone credit profile (SACP), which we now assess at 'a'. Inour view, Hyde’s SACP is supported by a very strong enterprise profile backed by the strong economic fundamentals of London and the South of England, where the substantial difference between the levels of social and market rents results in a high demand for Hyde’s services. The ratings on Hyde are constrained by its adequate financial profile, stemming from weak financial performance, relatively high debt levels, and exposure to open market sales. We also factor in our assessment of Hyde’s SACP the moderately high likelihoodof extraordinary support from the U. K. government (AA/Negative/A-1+)--working through the Homes and Communities Agency--in the event of financial distress, resulting in a one-notch uplift on the SACP.

Under our criteria for government-related entities, our view of a moderately high likelihood of extraordinary government support is based on our assessmentof Hyde's important role for the U. K. government and its public policy mandate. It is also based on its strong link with the U. K. government, demonstrated by the government's track record of providing strong credit support in certain circumstances.

We intend to review the ratings within the next 90 days, after evaluating the effect of the cancellation of this merger on Hyde's financial profile, focusing on its revised business strategy, capital plans, as well as our assessment of its management and governance. In addition, our review will alsoexamine the risks arising from Hyde's exposure to non-traditional activity, particularly from development for outright sales and shared ownership activities that carry an element of sales risk.

We could further lower the rating on Hyde if we took a negative view on the group's financial profile, stemming from loss in efficiency gains due to the cancellation of the merger and based on our assessment of the revised capital plan and its high exposure to non-traditional activities.

We could remove the CreditWatch negative placement and affirm the rating if weconcluded that the merger cancellation would have no further downward effect on our assessment of Hyde's business strategy and financial profile.