Nordic Credit Rating (NCR) said today that it had lowered its long-term rating on Sweden-based community service property manager Fastighets AB Stenvalvet (publ) to 'BBB' from 'BBB+'. The outlook is stable. The short-term rating was affirmed at 'N3'. At the same time, NCR lowered the senior unsecured issue rating to 'BBB' from 'BBB+'.
The lowering of the long-term issuer rating reflects the company's weaker financial risk profile following the repayment of its shareholder loans, which we treated as equity. While SEK 245m of the loans and unpaid interest will be converted to equity, SEK 1.6bn of the SEK 1.8bn in loans will be financed by a new credit facility, increasing NCR-adjusted net debt and projected interest costs. Following the repayment, we expect the net loan-to-value (LTV) ratio to increase to about 49% from 39% as of 31 Mar. 2023.
Going forward, we expect net LTV to remain 10 percentage points higher than our previous forecast, with a corresponding reduction in the interest coverage ratio. As we expect the financial metrics to weaken, we believe the overall financial risk has increased due to more senior debt in the capital structure. Although there is still uncertainty over Stenvalvet's ownership structure, the repayment of shareholder loans reduces the Church of Sweden's direct exposure to Stenvalvet and, in our view, reduces the urgency of reducing its ownership in Stenvalvet.
The stable outlook reflects our expectations that the financial metrics will weaken but stabilise over our forecast period. The outlook also reflects our expectation that Stenvalvet will continue to focus on community service properties, with long lease contracts under which rents are funded directly or indirectly by public institutions.
We could raise the rating to reflect credit metrics improving over the long term to NCR-adjusted net LTV below 40% and EBITDA/net interest over 3.0x. We could also raise the rating to reflect reduced uncertainty related to ownership and shareholder commitment.
We could lower the rating to reflect leverage increasing on a long-term basis to NCR-adjusted net LTV above 55% with EBITDA/net interest below 2.2x, given the current ownership. We could also lower the rating to reflect a higher proportion of non-public-sector tenants.
|Long-term issuer credit rating:||BBB||BBB+|
|Short-term issuer credit rating:||N3||N3|
|Senior unsecured issue rating:||BBB||BBB+|
Yun Zhou, analyst, +46732324378, email@example.com
Gustav Nilsson, analyst, +46735420446, firstname.lastname@example.org
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.