Westminster City Council has received an Aa3 long-term issuer rating from Moody’s Ratings. The authority was also assigned a Baseline Credit Assessment (BCA) of a1, with the ratings agency describing the outlook as ‘stable’.
Moody’s said the ratings reflected Westminster’s “economic strength and diversity, considerable financial strength and income generating power, moderate debt levels and low risk debt structure, strong governance and prudent financial planning”.
The rating also reflects spending pressures due to the high local demand for temporary accommodation and Westminster’s “large and ambitious” capital programme, Moody’s said.
In Moody’s’ view, Westminster’s debt and financial performance will remain stable over the medium term, with “its liquidity providing a buffer for its operating budget pressures and partially funding its capital programme”.
In its treasury management strategy statement for 2024/25 to 2028/29 published in February, Westminster said holding a formal independent credit rating would have assisted in the avoidance of a potential default action arising from audit delays that could have resulted in the council being in default and a possible recalling of £400m forward borrowing loans.
The strategy statement noted that at Westminster the audits for years 2021/22 and 2022/23 accounts were not signed off until the end of November 2023. An exceptional waiver was required and granted by one lender to allow the external audit process to be completed by this extended deadline in 2023. A delay into December “could have resulted in the council being in default and a possible recalling of the loan, resulting in a significant cost to the council”.
However, obtaining a financial rating “will assist in the avoidance of action arising from loan defaults should another non-completion of the external audit process take place,” the strategy statement produced by Gerald Almeroth, executive director of finance and resources, read. “External lenders with existing loan arrangements will refer to the existence and maintenance of the credit rating as proof of the financial strength and robustness of the council.”
The strategy statement noted that most local authorities would be aiming for an investment grade rating such as AA.
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Rating details
In assigning its credit rating, Moody’s said that Westminster’s “substantial economic strength derives from a dense concentration of global business headquarters as well as being the centre of London’s and the UK’s entertainment and tourism sectors. Its economic strength supports its high levels of liquidity and income generating power, which is also reflected in its low council tax rates. Its GDP per capita is exceptionally high at approximately £444,000, more than 10 times the UK average. In addition, Westminster’s economy is extremely well diversified in high-value sectors.”
Moody’s also noted that Westminster had been able to build up “substantial” cash and short-term investments balances of £802m as at the end of fiscal year 2024.
“Its strong liquidity supports its moderate net debt and indirect debt burden of 53% of gross operating revenues in fiscal 2024, as a substantial proportion of Westminster’s capital programme has been cash funded,” Moody’s continued.
“As of May 2024, Westminster’s cash and short-term investment balances were around 1.9x its debt stock. Its debt structure is low risk, all at fixed rates, only 2 % due in the next year, and 5% due for refinancing over the next five years.”
Moody’s also highlighted Westminster “large” capital programme, which is estimated at £2.6bn over the next five years.
“The bulk of the capital programme relates to two housing-led regeneration projects. However, we expect its debt burden to remain stable for at least the next two years, and likely longer, as Westminster will continue to rely on cash balances, and other non-debt funding sources, to fund capital expenditure,” Moody’s said. “In addition, we also expect programme slippages, which are common on large regeneration projects, and will also reduce the borrowing requirement over the medium term.”
Moody’s described Westminster’s financial management as “strong, with prudent and conservative fiscal planning”. The council bases its medium term financial strategy on assumptions of no growth in council tax revenue and declining UK government grants, it said, “which builds a significant level of prudence into its budget”.
Westminster’s treasury strategy was also deemed “prudent”, with all short-term investments being in Aaa-rated products and all being “highly liquid”. The ratings agency noted the council’s portfolio of investment property, with much of it legacy holdings, “which produce healthy and growing rental income, of some £43m in fiscal 2024”.
Westminster’s rating also reflects “tight” operating results, Moody’s commented, with spending pressures in particular from temporary accommodation, for which demand has risen substantially.
Some 3,700 households were eligible for temporary accommodation in Westminster as of fiscal Q4 2024, compared with 2,800 two years earlier. “Its net expenditure on temporary accommodation was £38m in fiscal 2024, approximately 20% of its core budget, with much of the expenditure on high-cost corporate hotels due to the lack of available social housing and affordable private housing in the borough,” Moody’s added. “While pressure will continue, we do not expect it to intensify, despite increasing demand for temporary accommodation, as Westminster executes its plans to buy temporary accommodation units.”
Finally, Westminster’s Aa3 issuer rating combines its BCA of a1 and a one-notch uplift due to Moody’s consideration of a “high likelihood that the United Kingdom government (Aa3 stable) would intervene in a timely manner to prevent a default”.
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