Nordic Credit Rating (NCR) said today that it had revised its outlook on Sweden-based property manager Intea Fastigheter AB (publ) to negative from stable. At the same time, the 'BBB+' long-term and 'N3' short-term issuer ratings were affirmed. The 'BBB+' senior unsecured issue ratings were also affirmed.
Rating rationale
The outlook revision reflects our expectations of a weakening of Intea's financial risk profile, due to a deterioration in financing conditions. The company has used up its shareholder commitments, which previously provided support for the company's financial risk profile. Despite more challenging real-estate and financing markets, we understand that Intea intends to obtain new shareholder commitments. We could lower the rating if the timeliness and extent of the commitments remain uncertain.
The company has a front-loaded debt maturity profile, but maintains SEK 2.9bn in unutilised credit facilities, and has demonstrated access to the commercial paper market. However, we view its reliance on capital market financing and a large bond maturity of SEK 1.35bn in Sep. 2023 as increasingly negative in a more challenging financing market. We expect the company to be proactive in refinancing upcoming debt maturities.
We expect Intea's interest coverage to decrease, despite a longer average fixed-interest period than many of its peers (3.5 years as of 30 Sep. 2022). Our base case estimates an NCR-adjusted net interest coverage ratio of below 3x by year-end 2023, down from 4.1x as of 30 Sep. 2022 and compared with our previous estimate of 3.2x by year-end 2023. In addition, we expect Intea's net loan-to-value (LTV) ratio to come under pressure on the back of rising interest rates and property yields. However, we assess that Intea's business risk profile remains strong and that the company will be able to raise rents considerably thanks to its substantial proportion of inflation-linked contracts with public-sector tenants.
As of 30 Sep. 2022, Intea's unsecured debt accounted for 61% of its total debt. If the share of unsecured debt falls below 50% over a protracted period, it could affect our view of recovery prospects for senior unsecured bondholders and, consequently, our issue ratings.
Negative outlook
The negative outlook reflects uncertainty regarding the status of shareholder commitments, which support our view of the company's financial risk profile. We also expect Intea's credit metrics to come under pressure on the back of rising interest rates and more challenging capital markets.
We could lower the rating if the company fails to obtain new shareholder commitments and net LTV remains above 50% or net interest coverage falls below 3.5x. We could also lower the rating if new shareholder commitments are established but net LTV remains above 50% or net interest coverage falls below 2.2x. In addition, we could lower the rating if the company is not proactive in refinancing its large upcoming bond maturity.
We could revise the outlook to stable if the company obtains new shareholder commitments and net LTV falls below 50% and net interest coverage remains above 2.2x. We could also revise the outlook to stable if the company fails to obtain new shareholder commitments but deleveraging results in net LTV falling below 50% and net interest coverage stabilising above 3.5x.
| 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:
Marcus Gustavsson, analyst, +46700442775, marcus.gustavsson@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 18 Feb. 2022, 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.