Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB-' long-term issuer rating on Norway-based OBOS BBL. The outlook is stable. At the same time, the 'N3' short-term issuer rating and the 'BBB-' issue ratings on the company's senior unsecured bonds were also affirmed in accordance with our revised corporate rating methodology. The ratings are no longer under criteria review.
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 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' ability to generate liquidity and its healthy covenant headroom.
These strengths are partly offset by a weakened residential development market, in which demand for new-build housing has fallen materially due to the sharp rise in interest rates since February 2022. Our assessment is also constrained by OBOS' weak leverage and interest coverage metrics, which we expect to decline further as a result of the ailing residential property market. In our view, the company's structure as a member association results in a limited ability to inject 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 continues to benefit 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 and debt accumulation as a result of the weakened residential market, which we expect to impact residential development sales negatively and erode key credit metrics if low demand extends into 2024.
We could raise the ratings to reflect improved credit metrics (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 ratings to reflect deteriorating credit metrics (equity ratio below 50% or EBITDA/net interest below 1.5x over an extended period) or further deterioration in the residential property market, limiting production and reducing prospects for home sales in 2025 and beyond.
| 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:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Yun Zhou, analyst, +46732324378, yun.zhou@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 24 May 2022 and NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022. For the full regulatory disclaimer please see the rating report.