OREANDA-NEWS. S&P Global Ratings said today that it placed its 'AA-' long-term issuer credit rating on U. K.-based social housing provider London & Quadrant Housing Trust (L&Q) on CreditWatch with negative implications.

At the same time, we placed on CreditWatch negative our 'AA-' long term issue ratings on the ?300 million senior secured debt issued by L&Q in April 2016; the ?250 million senior secured debt issued in October 2015; ?250 million of senior secured debt issued in March 2012; and ?300 million senior secured debtissued in January 2010.

The CreditWatch negative placement follows the announcement of material changes to the planned three-way merger between L&Q, Hyde Housing Association, and East Thames. We understand that L&Q and East Thames will instead work towards a two-way merger expected to close towards the end of 2016. We will evaluate the impact of this change on L&Q's business strategy and capital plans, on our assessment of its management and governance, and on the loss in efficiency gains from the previously planned merger. In addition, we will alsobe reviewing L&Q's risk exposure to market driven activities such as outright sales, shared ownership, and its private rental portfolio, as a stand-alone entity.

The 'AA-' rating reflects our continued assessment of its stand-alone credit profile at 'aa-'. This is supported by L&Q’s very strong enterprise profile, underpinned by very strong economic fundamentals that benefit from its operations in London and the South, where it enjoys substantial difference in the level of social and market rents resulting in high demand for L&Q’s services. The SACP is also supported by strong financial profile, resulting from strong liquidity and low debt burden. At the same time, the rating is constrained by the exposure to non-traditional activities, in particular to the open market sales and shared ownership. We also continue to acknowledge that the moderately high likelihood of L&Q receiving extraordinary support from the U. K. government, working through the Homes and Communities Agency, has a neutral effect on the ratings.

In accordance with our criteria for government-related entities, we base our view of the likelihood of extraordinary government support on our assessment of L&Q's important role for the U. K. government and its public-policy mandate, and its strong link with the government. The U. K. government has a track record of providing extraordinary support to the sector in case of distress.

We expect to resolve the CreditWatch within the next 90 days. We will focus onevaluating L&Q's revised business strategy, capital plans, and our assessment of its management and governance. In addition, our review will also examine the risks arising from exposure to non-traditional activity, particularly fromthe development for outright sales and shared ownership activities that carry an element of sales risk.

We could lower the ratings on L&Q, if the revised business strategy and elevated risks stemming from exposure to non-traditional activities weaken ourview of the enterprise profile of L&Q.

Conversely, we could affirm the ratings, if we believed that the revised strategy and the risk from exposure to non-traditional activities would not have a material impact on L&Q creditworthiness.