Nordic Credit Rating (NCR) said today that it had revised its outlook on Sweden-based community service property manager Fastighets AB Stenvalvet (publ) to negative from stable. At the same time, the 'BBB+' long-term and 'N3' short-term issuer ratings were affirmed. The senior unsecured issue rating was affirmed at 'BBB+' in accordance with NCR's revised corporate rating methodology. The ratings are no longer under criteria review.
Rating rationale
The outlook revision reflects the uncertainty of Stenvalvet's current ownership structure and shareholder commitments, as its main owner, the Church of Sweden, has indicated it plans to reduce its ownership in Stenvalvet to below 50%. Given the inclusion of strong and committed owners in our assessment of the company's financial risk profile, a reduction in ownership by the church could negatively affect our view of the company's financial risk appetite in relation to the company's financial ratios. Combined with our lower assessment of Stenvalvet's financial risk due to a weakening of its financial metrics, a further downward revision of our projections or greater financial risk appetite could result in a lower issuer rating.
The affirmation reflects the company's strong property portfolio and long-term contracts with highly creditworthy public-sector tenants, 91% of which are directly or indirectly financed by government funding. We have raised our assessment of Stenvalvet's property portfolio to reflect a high degree of government funding and lower project exposure. Because of uncertain market conditions, we expect Stenvalvet to reduce acquisition and project activity over the next few years.
Negative outlook
The negative outlook reflects uncertainty about Stenvalvet's ownership structure and shareholder commitments. Stenvalvet's main owner, the Church of Sweden, has indicated in its annual report that it aims to reduce its ownership to below 50% in the long run, from 69% since January 2022. We also note that the Swedish FSA opened an investigation into the Church of Sweden's increased investment in Stenvalvet in October 2022, which could accelerate the church's efforts to reduce its ownership.
We could lower the rating to reflect a substantial change in the ownership structure or increased leverage on a long-term basis (NCR-adjusted net loan to value (LTV) above 45% and EBITDA/net interest below 3.0x). We could also lower the rating to reflect a higher proportion of non-public-sector tenants.
We could revise the outlook to stable if the uncertainty related to ownership and shareholder commitment is reduced and NCR-adjusted credit metrics remain strong over the long term (NCR-adjusted net LTV below 45% and EBITDA/net interest over 3.0x).
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB+ | BBB+ |
| Outlook: | Negative | Stable |
| Short-term issuer credit rating: | N3 | N3 |
| Senior unsecured issue rating: | BBB+ | BBB+ |
Contacts:
Yun Zhou, analyst, +46732324378, yun.zhou@nordiccreditrating.com
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@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.