Nordic Credit Rating said today that it had lowered its long-term issuer rating on Sweden-based residential property manager Studentbostäder i Norden AB (publ) to 'C' from 'CC', reflecting our expectation of an imminent event of default on the company's sole outstanding senior unsecured bond. At the same time, we placed the rating on Watch Negative and affirmed the 'N6' short-term rating. We do not rate the unsecured bond.
Rating rationale
Earlier today, Studentbostäder initiated a written procedure proposing revisions to the terms of its outstanding bond, including an extended maturity period of 2.5 years (15 Nov. 2026 from 14 May 2024 previously) and a downward revision of the bond's interest coverage covenant. According to our definition, the revisions would qualify as a distressed exchange and an event of default on the bond, given that the proposed amendments are necessary to avoid near-term default by the issuer. Although we do not rate the unsecured bond, the distressed exchange would be defined as an instance of selective default, and result in a long-term 'SD' issuer rating upon the revision of terms, providing the company fulfils its other commitments.
According to Studentbostäder, 63.8% of bondholders have committed to approve the proposals (which require the support of two-thirds of eligible investors), and we consider it highly likely that the revisions will be approved and the bond terms changed.
At the same time, Studentbostäder announced a directed equity issue to raise SEK 331m, resulting in SEK 271m in net proceeds. The company will use SEK 120m to amortise the bond and SEK 90m to finalise ongoing projects, leaving SEK 61m in new cash. Studentbostäder also announced that it will not divest its Danish portfolio as originally planned. Further, we note that the proposed revisions include other adjustments to the terms of the bond, including amortisation requirements.
At this point, the 'C' issuer rating reflects our expectation of an imminent distressed exchange, but does not represent our assessment of the impact of the proposed actions on Studentbostäder's long-term creditworthiness.
Watch Negative
The placement of the rating on Watch Negative reflects our expectation that the written procedure will be approved by bondholders in the near term. If the procedure is approved, we will review the long-term rating, with the outcome depending on Studentbostäder's prospects of avoiding further covenant breaches and fulfilling its debt obligations.
In the unlikely event of the written procedure not receiving sufficient approval from bondholders, we believe the risk of reconstruction increases materially. Without the amended terms, we would expect Studentbostäder to breach the interest coverage ratio covenant in the current quarter, which would put the financial future of the company at risk.
Rating list | To | From |
---|---|---|
Long-term issuer credit rating: | C | CC |
Watch: | Watch Negative | Watch Negative |
Short-term issuer credit rating: | N6 | N6 |
Related publications:
i) Corporate Rating Methodology, publ. 8 May 2023
ii) Rating principles, publ. 24 May 2022
iii) Studentbostäder i Norden AB (publ) long-term issuer rating lowered to 'CC'; Rating on Watch Negative, publ. 18 Jul. 2023
iv) Studentbostäder i Norden AB (publ) long-term issuer rating lowered to 'CCC'; Rating on Watch Negative, publ. 24 May 2023
v) Studentbostäder i Norden AB (publ) long-term issuer rating lowered to 'B+'; Outlook negative, publ. 19 Jan. 2023
Contacts:
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Yun Zhou, analyst, +46732324378, yun.zhou@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.