Our 'BBB+' issuer and issue ratings for Svensk FastighetsFinansiering AB (publ) are unchanged following the maturity of recent bonds and the publication of first-quarter results by its owners.
SFF publishes mid-year financial accounts, but also regularly updates its market value reports, most recently with the maturity of a bond on 20 Apr. 2020.
SFF volumes fall as bond markets tighten
SFF signed terms on three bonds in February, prior to material impacts of COVID-19, with nominal amounts totalling SEK 1.7bn. These bonds refinanced SEK 2bn in maturing bonds during the first quarter. The new bonds have two-, three- and four-year tenors.
However, the severe decline in the capital markets since March contributed to SFF's owners using alternative financing when SFF's SEK 1.1bn bond matured on 20 Apr. 2020. As a result, SFF's outstanding bonds reduced to SEK 7.4bn (SEK 8.9bn at end-2019) as of 20 Apr. 2020. According to SFF, outstanding bonds finance properties worth SEK 14.1bn (SEK 17.2bn), resulting in a loan-to-value (LTV) ratio of 52.3% (51.5%).
Since April 20, SFF finances 30 properties, down from 46 at end 2019. The number of properties Diös finances with SFF has reduced to 4 from 13, during 2020, increasing the focus of the portfolio on office properties in Sweden's three largest cities. As of April 20, Wihlborgs has the highest loan volumes with SFF at 34% of SFF's outstanding bonds.
In our view the decline in volumes is likely to be temporary and highly dependent on SFF's financing costs at tenors available in the capital markets can compete with owners' own bank financing. The recent decline in loan volumes also reflects that SFF's owners actively manage their use of SFF as a financing source and shows that owners maintain adequate liquidity prior to SFF bond maturities.
SFF's next maturing bonds are a green bond of SEK 300m maturing 29 May 2020 and a bond of SEK 534m maturing 1 Jun. 2020. These bonds finance four properties spread among three of SFF's owners.
Owners' Q1 report summary
SFF's five owners reported rather stable results for the first quarter. Key credit metrics for LTV and occupancy rate changed modestly while EPRA net asset value for all owners improved during the quarter due to completions of projects and revaluations of existing assets.
We believe that forward-looking property valuations are rather uncertain at this time, as are economic forecasts for the Swedish economy and prospects for specific sectors. We note, however, that the share of SFF's loans secured by office properties and terminals has increased to 90% as of 20 Apr. 2020 and that SFF has no security in hotel properties or properties with at-risk retail tenants.
We maintain credit assessments on the owners that range from bbb/bb. Based on Q1 reports the owners maintain adequate liquidity to mitigate SFF's refinancing risk during 2020.
This commentary does not reflect a rating action.
If you have any questions, please contact:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Daniel Johansson, credit rating analyst, +46732324378, daniel.johansson@nordiccreditrating.com