Nordic Credit Rating (NCR) said today that it had assigned a 'BBB-' long-term issuer rating to Norway-based residential developer OBOS BBL. The outlook is stable. At the same time, an 'N3' short-term issuer rating was assigned. NCR also assigned 'BBB-' issue ratings to OBOS' senior unsecured bonds.
Rating rationale
The long-term issuer rating reflects OBOS' strong market position as one of the largest residential developers in the Nordic region. OBOS has been a fixture in the Norwegian housing sector for nearly 100 years and has become a major component of the Swedish housing market over the past decade. Our assessment takes account of the benefits of OBOS' diverse range of business, investment and financial activities. It also reflects OBOS' strong balance sheet, especially given the large excess values in its land bank, equity investments and subsidiaries. We take a positive view of OBOS' generally strong liquidity position and healthy covenant headroom.
These strengths are partly offset by the cyclicality of the residential market, in which demand for new-build housing is closely linked to the state of the overall economy. Our assessment is constrained by OBOS' weak leverage, cash flow and interest coverage metrics, which we expect to weaken further as a result of a slowing residential market. In our view, additional financial risk arises from the company's structure as a member association, which results in a limited ability to inject equity if needed.
Stable outlook
The stable outlook reflects our expectations of a financial risk profile that continues to benefit from a strong balance sheet, ample liquidity and healthy covenant headroom. It also reflects our expectations of a slowing residential market, negatively impacting OBOS' home sales and key credit metrics over our forecast period through 2024. We could raise the rating to reflect: improved credit metrics, with net debt/EBITDA below 4x and EBITDA/net interest above 6x over an extended period; or increased scale and improved operating margins, combined with a strengthened market position in Sweden. We could lower the rating to reflect: deteriorating credit metrics, with an equity ratio below 50% or EBITDA/net interest below 1.5x over an extended period; or a residential market deteriorating beyond our expectations, reducing prospects for home sales and further weakening credit metrics.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | BBB- |
| Outlook: | Stable |
| Short-term issuer credit rating: | N3 |
| Senior unsecured issue rating: | BBB- |
Contacts:
Marcus Gustavsson, analyst, +46700442775, marcus.gustavsson@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 18 Feb. 2022, NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022 and NCR's Rating Principles published on 24 May 2022. For the full regulatory disclaimer please see the rating report.