Nordic Credit Rating said today that it had affirmed its 'BB-' long-term issuer rating on Sweden-based property manager Stendörren Fastigheter AB (publ). The outlook is stable. At the same time, the 'N4' short-term issuer was also affirmed.
Rating rationale
The affirmation reflects continued performance in line with our expectations. Stendörren's net loan-to value (LTV) and net interest coverage ratio (ICR) will weaken as a result of rising market interest rates and declining property values. However, the effect on the financial metrics is mitigated by the company's extensive interest rate hedging, with roughly 80% of interest-bearing liabilities hedged as of 30 Sep. 2022, mainly using interest rate caps. Our base case foresees LTV increasing towards 58% and ICR weakening towards 1.6x by the end of 2024, but the financial metrics remain within the boundaries of our assessment of the financial risk profile.
We have raised our assessment of Stendörren's business risk profile and operating efficiency to reflect improved EBITDA margins and occupancy rates.
Stable outlook
The stable outlook reflects our belief that Stendörren will reduce its growth ambitions, maintain leverage in the short term and focus on pre-let projects. We expect the company to find new tenants to mitigate the contract maturity of its single largest tenant, but note that vacancies might increase temporarily. We also expect the company to be proactive in managing its upcoming debt maturities in 2024.
We could lower the rating to reflect an NCR-adjusted LTV ratio above 65% and EBITDA/net interest below 1.5x, an impending or actual covenant breach, or to reflect a deteriorating liquidity position.
We could raise the rating to reflect an NCR-adjusted LTV ratio below 55% and EBITDA/net interest above 2.2x. We could also raise the rating to reflect a significant decrease in project exposure, with limited speculative elements.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BB- | BB- |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N4 | N4 |
Contacts:
Yun Zhou, analyst, +46732324378, yun.zhou@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@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.