Nordic Credit Rating said today that it had affirmed its 'BBB-' long-term issuer rating on Norway-based residential property developer OBOS BBL. The outlook is stable. The 'N3' short-term issuer rating and the 'BBB-' issue rating on the company's senior unsecured debt were also affirmed.
Rating rationale
The long-term issuer rating reflects OBOS' strong market position as one of the largest residential developers in the Nordic region. The company 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 into account the benefits of OBOS' diverse range of business, investment and financial activities. It also reflects the company's strong balance sheet, especially given the large excess values in its land bank, equity investments and subsidiaries. We take a positive view of OBOS' ability to generate liquidity and its healthy covenant headroom.
These strengths are partly offset by a weak residential development market, in which demand for new housing has declined significantly due to a sharp rise in interest rates over the past two years. Our assessment is also constrained by OBOS' weak leverage and interest coverage metrics. In our view, the company's structure as a member association results in a limited ability to obtain equity, if needed, increasing the importance of its ability to divest its equity investments and land bank to generate liquidity.
Stable outlook
The stable outlook reflects our expectations of a financial risk profile that benefits from a strong balance sheet and the completion of housing projects supporting near-term liquidity and continued investment. It also reflects our expectations that OBOS will reduce its capital spending as a result of a reduction in the amount of completed projects over the next few years, and our view that the company is well-positioned to capitalise when the market recovers.
We could raise the rating to reflect improved credit metrics (net debt/EBITDA below 4x and EBITDA/net interest above 4x) over an extended period, or increased scale and improved operating margins, combined with a stronger market position in Sweden.
We could lower the rating to reflect a further deterioration or lack of recovery in the residential market, weaker credit metrics (equity ratio below 55% or EBITDA/net interest below 1.5x) over an extended period.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB- | BBB- |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N3 | N3 |
| Senior unsecured issue rating: | BBB- | BBB- |
Contacts:
Anine Gulbrandsen, analyst, +4797501657, anine.gulbrandsen@nordiccreditrating.com
Yun Zhou, analyst, +46732324378, yun.zhou@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 8 May 2023, NCR's Rating Principles published on 14 Feb. 2024 and NCR's Group and Government Support Rating Methodology published on 14 Feb. 2024. For the full regulatory disclaimer please see the rating report.