Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB+' long-term issuer rating on Sweden-based property manager financing vehicle Svensk FastighetsFinansiering AB (publ) (SFF). The outlook is stable. At the same time, the 'N3' short-term issuer rating and the 'BBB+' senior secured issue rating were also affirmed.
Rating rationale
The affirmation reflects our view that, despite decreasing loan and collateral volumes, SFF will maintain sufficient size and diversification to not materially increase concentration risk or risk of breached portfolio covenants. In addition, the affirmation reflects our forecast that, despite a decrease in property values due to widening yield requirements, the NCR-adjusted net loan-to-value (LTV) ratio will remain below 55%.
The 'BBB+' long-term issuer rating on SFF reflects the company's purpose as a financing vehicle for its owners, five of Sweden's largest real-estate companies. The rating also reflects the company's low risk appetite, the creditworthiness and continuous support provided by its owners, and the collateral available for senior secured bondholders. The rating is also indicative of the relatively long average remaining lease term and the high occupancy rates of the properties in the pledged portfolio, as well as the stable operating environment.
These strengths are partially offset by increasingly high net LTV for the rating level, at 49.5% as of 31 Dec. 2022, and the company's short debt maturity profile, with large maturities concentrated in single years and quarters.
Stable outlook
The stable outlook reflects our expectations of stable performance by both SFF's property segments and its owners. Net LTV is elevated, but we believe the owners will add sufficient collateral to ensure the financial risk profile is maintained. We expect SFF to maintain sufficient diversity in its collateral pool, and for loan and collateral volumes to increase once markets allow. We see the company's risk appetite remaining low, given the restrictions in SFF's MTN prospectus. Furthermore, we expect SFF to remain an attractive funding source for its five owners and its current ownership to stay unchanged.
We could raise the rating to reflect a sustainable reduction in NCR-adjusted net LTV to below 45%. We could also raise the rating to reflect an improvement in portfolio quality and/or a greater proportion of pledged residential properties, or to reflect a greater number of pledged properties, together with improved tenant diversification.
We could lower the rating to reflect a deterioration in the creditworthiness or withdrawal of one or more of the owners. We could also lower the rating to reflect an increase in NCR-adjusted net LTV to above 55% over a protracted period, or collateral pool value and diversification remaining at or below levels around 2023 expectations.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB+ | BBB+ |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N3 | N3 |
| Senior secured issue rating: | BBB+ | BBB+ |
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 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.