Nordic Credit Rating (NCR) said today that it had revised its outlook on Sweden-based property manager Studentbostäder i Norden AB (publ) to negative from stable. At the same time, the 'BB-' long-term issuer rating and the 'N4' short-term issuer rating were affirmed.
Rating rationale
The outlook revision reflects an increased likelihood that Studentbostäder might breach a 1.5x interest-coverage maintenance covenant (1.7x reported in the first quarter of 2022). In our base case, we expect interest coverage to remain in compliance with covenant levels through 2022 and 2023. However, we believe that downside risk has increased due to uncertainty about how fast and to what extent the Swedish central bank will raise its policy rate. In our view, there is a material risk that covenant headroom will diminish, although the closing of already communicated acquisitions and the finalisation of development projects will likely mitigate the impact. Studentbostäder's relatively low degree of interest fixing leaves it more exposed to rising interest rates than most of its peers. Positively, we believe that the company is committed to reducing the negative impact of rising interest rates through cost reductions and loan refinancing. Nevertheless, we believe that the risk of a covenant breach has increased.
Negative outlook
The negative outlook reflects an increased risk of a breach of the interest-coverage covenant. We could lower the rating to reflect an impending or actual covenant breach. We could also lower the rating to reflect weakened credit metrics (net LTV above 75%) over a protracted period or deteriorating market fundamentals that adversely affect occupancy and/or profitability. We could revise the outlook to stable if covenant headroom increases or stabilises at current levels.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BB- | BB- |
| Outlook: | Negative | Stable |
| Short-term issuer credit rating: | N4 | N4 |
Contacts:
Marcus Gustavsson, analyst, +46700442775, marcus.gustavsson@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 18 Feb. 2022, NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022 and NCR's Rating Principles published on 24 May 2022. For the full regulatory disclaimer please see the rating report.