Nordic Credit Rating (NCR) said today that it had raised its long-term issuer rating on Sweden-based residential property manager Studentbostäder i Norden AB (publ) to 'CC' from 'SD'. The outlook is developing. The short-term issuer rating was raised to 'N6', also from 'SD'. The ratings were subsequently withdrawn at the issuer's request.
Rationale
The rating action reflects continued uncertainty about the long-term viability of Studentbostäder's capital structure. We expect continued pressure on the company's cash flows due to higher financing costs, despite the recent conversion of the coupon on an outstanding bond to payment-in-kind (PIK) interest. We believe that, without mitigating action, the company faces a drain on liquidity and substantial refinancing risk in the immediate future due to inadequate operational cash flows. We expect NCR-adjusted EBITDA/net interest to approach 1.1x by end-2024 (excluding PIK-interest) and fall marginally below 1.0x (including PIK-interest). In addition, we expect Studentbostäder's covenant-calculated interest coverage ratio to rise to about 1.7x by end-2024 (compared with the stipulated level of 1.3x). This estimate excludes capitalised interest costs and PIK interest and would provide the company with a degree of covenant headroom.
Studentbostäder's high financial gearing and downside risk to the company's property values weigh on our assessment of its capital structure. As of mid-2023, the NCR-adjusted net loan-to-value ratio stood at 71.7%. A significant level of highly encumbered assets could impair the company's ability to generate sufficient net proceeds through sales and could complicate bank refinancing. In addition, uncertainties exist about the ability to divest some of the company's assets given the currently sluggish Swedish transaction market and poor financing conditions. Positively, the company has indicated that it has received expressions of interest in its Danish portfolio.
Developing outlook
The developing outlook at the point of withdrawal reflected a likelihood that the rating could have been lowered or raised within the subsequent 12 months. The outlook also reflected our expectations that difficult market conditions, including elevated financing costs and rising yield requirements, could continue to pressure Studentbostäder's financial metrics and liquidity. In addition, we see risk related to the refinancing of more than SEK 500m in bank loans over the next 12 months. Conversely, Studentbostäder could take mitigating action, including divestments or adding further equity, which, together with lower floating rates, could improve interest coverage and reduce the drain on liquid resources.
Rating list | Withdrawal | To | From |
---|---|---|---|
Long-term issuer credit rating: | NR | CC | SD |
Outlook: | - | Developing | N/A |
Short-term issuer credit rating: | NR | N6 | SD |
Related publications:
i) Corporate Rating Methodology, 8 May 2023
ii) Rating principles, 24 May 2022
iii) Studentbostäder i Norden AB (publ) long-term issuer rating lowered to 'SD' due to distressed exchange on bond, 13 Oct. 2023
iv) Studentbostäder i Norden AB (publ) long-term issuer rating lowered to 'C'; Rating on Watch Negative, 22 Sep. 2023
v) Studentbostäder i Norden AB (publ) long-term issuer rating lowered to 'CC'; Rating on Watch Negative, 18 Jul. 2023
vi) Studentbostäder i Norden AB (publ) long-term issuer rating lowered to 'CCC'; Rating on Watch Negative, 24 May 2023
vii) Studentbostäder i Norden AB (publ) long-term issuer rating lowered to 'B+'; Outlook negative, 19 Jan. 2023
Contacts:
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com
Yun Zhou, analyst, +46732324378, yun.zhou@nordiccreditrating.com
Sean Cotten, Chief Rating Officer, +46735600337, sean.cotten@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.