Nordic Credit Rating (NCR) said today that it had affirmed its 'A' long-term issuer rating on Norway-based Bane NOR Eiendom AS. The outlook is stable. NCR also affirmed the 'N2' short-term rating and the 'A' senior unsecured issue rating, in accordance with its revised corporate rating methodology. The ratings are no longer under criteria review.
Rating rationale
The long-term issuer rating reflects Bane NOR Eiendom's low leverage, solid average remaining lease term and a high share of government-funded tenants. The rating is also supported by the company's de facto monopoly over domestic railway stations and workshops and its importance to the Norwegian railway infrastructure. The company's large and central land bank supports future development opportunities in city centres in close proximity to existing stations. The rating is constrained by the size of Bane NOR Eiendom's management portfolio, though this is mostly offset by the specialised nature of the properties. It is also constrained by the company's revenue concentrations and the risks associated with development projects.
We add two notches to our standalone credit assessment to reflect Bane NOR Eiendom's 100% indirect ownership by the Norwegian government and our view that the government has a strategic interest due to the company's role as a provider of critical public-transport infrastructure.
Our view of the company's market position, size and diversification has improved as a result of stronger footfall and property management revenues as the impacts of the pandemic diminish. However, we have lowered our assessment of the company's financial risk to reflect a significant decline in the interest coverage ratio due to a sharp increase in interest costs and lower sales activity in 2022 and 2023, as well as higher loan-to-value (LTV) ratios resulting from higher property yields.
Stable outlook
The stable outlook reflects our expectation that the company's credit metrics will remain strong, despite increasing interest rates and potential financial headwinds in the form of high inflation and the potential reduction in economic activity during our forecast period. It also reflects our belief that the company will achieve competitive prices on sales in its development portfolio, allowing it to reduce leverage and improve its liquidity position. In addition, we expect footfall through the company's railway stations to return towards pre-pandemic levels, supporting occupancy and increasing the attractiveness of its property locations.
We could raise the rating to reflect NCR-adjusted LTV of around 20% and an NCR-adjusted EBITDA margin above 65% for a prolonged period. We could also raise the rating to reflect a strengthened financial policy through tighter leverage targets or improved profitability and revenue stability. We could lower the rating to reflect NCR-adjusted net LTV above 35% and NCR-adjusted net interest coverage below 3.5x over a prolonged period. We could also lower the rating due to weaker profitability in development projects or an inability to achieve competitive prices on development properties.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | A | A |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N2 | N2 |
| Senior unsecured issue rating: | A | A |
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@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 Rating Principles published on 24 May 2022, NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022 and NCR's Corporate Rating Methodology published on 8 May 2023. For the full regulatory disclaimer please see the rating report.