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Nov 1 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned UNITE (USAF) II PLC's First New Notes expected ratings, asfollows:
GBP185m First New Notes due June 2030 (ISIN TBC): 'Asf' (exp); Outlook Stable
KEY RATING DRIVERS
The expected ratings are based on Fitch's assessment of the underlying collateral, available credit enhancement and the transaction's legal structure. The notes are Unite (USAF) II Plc's second bond issuance, known as the First New Notes, following and ranking pari passu with the June 2013 GBP380m debt issuance (known as the Initial Notes).
The transaction is a securitisation arranged for the refinancing of existing indebtedness of the UK Student Accommodation Fund (USAF), which is the sponsor of the SPV borrower USAF Finance II Limited. The issuer will advance proceeds to the borrower, who will in turn make certain intra-group loans to property holding limited partnerships to complete the refinancing. The loan to the borrower accrues interest at the same fixed rate as the notes with the borrowing group indemnifying the issuer for all incurred costs.
The issuance of the First New Notes is accommodated by the transaction, given the borrowing group can increase, alter or change its debt profile within certain covenanted levels, and subject to: a maximum loan-to-value ratio (LTV) no higher than 55%; an interest coverage ratio (ICR) no lower than 2.0x; and certain portfolio-related criteria governing disposals and acquisitions. In its analysis, Fitch assumes that these covenants reach their limits. Should performance deteriorate beyond specified triggers, a partial or full cash trap would hasten debt amortisation unless cured within 18 months. After the issuance of the First New Notes the LTV will be 49.8% and ICR 3.1x - both well within their covenanted levels and moderately improves current leverage.
Following issuance of the First New Notes, total borrower debt will rise to GBP590m, comprising the two securitised loans (the new GBP185m loan maturing in June 2025 and the original GBP380m loan maturing in June 2023) and a GBP25m pari-passu ranking revolving credit facility (RCF) held at the level of the limited partnerships. All credit lines are governed by shared transaction documentation to which any potential new senior lender would have to sign up, thus preserving the structural integrity underpinning the expected rating.
As well as the additional debt issuance, 14 student accommodation properties have been introduced to the collateral pool, increasing the total to 53 and providing almost 19,000 beds in total. The portfolio is relatively diverse, spread over 19 cities/towns, with the top five geographical concentrations making up 57% by market value and the largest single asset making up just 6%. Two-thirds of rental income is derived from direct lets to students with the remainder from both long and short-term nomination agreements with universities.
The granularity of income stemming from these assets alongside a stable market outlook for student accommodation underpins the expected rating.
HSBC Bank plc (AA-/Stable/F1+) is the issuer account bank and liquidity facility provider to the issuer and the available liquidity facility will be increased to cater for the additional debt. The liquidity line addresses payment interruption risk that could arise from insolvency within the obligor group while rental payments are diverted to issuer-controlled accounts.
RATING SENSITIVITIES
Expected impact upon the note rating of shift in vacancy and rental value decline:
Original rating: 'Asf'
Increase of 10% in vacancy and rental value decline: 'Asf'
Increase of 20% in vacancy and rental value decline: 'BBBsf'
Expected impact upon the note rating of shift in capitalisation rate:
Original rating: ' Asf'
Increase of 10% of the capitalisation rate assumptions: 'Asf'
Increase of 20% of the capitalisation rate assumptions: 'BBBsf'
Expected impact upon the note rating of shift in capitalisation rate, vacancy and rental value decline assumptions:
Original rating: 'Asf'
Deterioration in all factors by 10%: 'BBBsf'
Deterioration in all factors by 20%: 'BBsf'
While a sudden deterioration in counterparties ratings could negatively affect the notes' ratings, the triggers set in the transaction documents are in line with Fitch's counterparty criteria (see 'Counterparty Criteria for Structured Finance Transactions', dated May 2013 available at www.fitchratings.com).
A presale report will be available at www.fitchratings.com
