Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB+' long-term issuer rating on Sweden-based Svensk FastighetsFinansiering AB (publ) (SFF). The outlook is stable. At the same time NCR affirmed the 'N3' short-term rating and the 'BBB+' senior secured issue rating.
Rating rationale
The affirmation reflects continued performance in line with our expectations. SFF has seen a decrease in outstanding debt, and corresponding collateral volume, since 2022, but we continue to expect that the trend will turn in 2024. We are now expecting bond and collateral volumes to increase more rapidly in 2024 and 2025 compared with our expectations one year ago. We are also expecting that SFF will focus on improving diversification in its collateral pool, something which has gradually worsened as the pool has decreased.
The long-term rating continues to reflect SFF'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. It 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. In addition, the rating reflects liquidity assurance provided by the owners, which limits the near-term refinancing risk.
Downward pressure on property values has impacted net loan-to-value (LTV), which remains high for the rating level despite a strong cash position. The rating is constrained by the high net LTV (48.2% as of 30 Jun. 2023), as well as the company's short debt maturity profile, with large maturities concentrated in single years and quarters.
Stable outlook
The outlook is stable, reflecting our expectations of stable performance by both SFF's property operations and its owners. Net LTV is elevated, but we believe the owners will provide sufficient collateral to ensure the financial risk profile is maintained. We expect SFF to improve diversity in the collateral pool, and increase new bond issuance to refinance upcoming maturities. We also expect SFF's risk appetite to remain low, given restrictions in its medium-term note (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 significant improvement in collateral pool diversity and portfolio quality, combined with a sustainable reduction in NCR-adjusted net LTV to below 45%.
We could lower the rating to reflect a failure to improve collateral pool diversity through our forecast period ending 2025, or a material deterioration in 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.
| 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
Elisabeth Adebäck, analyst, +46700442775, elisabeth.adeback@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.