Nov 19 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned UNITE (USAF) II PLC's first new notes final rating, and affirmedthe rating of the initial notes, as follows:
GBP380m initial notes due June 2028 (ISIN XS0942125963): affirmed at 'Asf'; Outlook Stable
GBP185m first new notes due June 2030 (ISIN XS0991898197): 'Asf'; Outlook Stable
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.
KEY RATING DRIVERS
The first new notes are Unite (USAF) II Plc's second bond issue following and ranking pari passu with the GBP380m debt issue (known as the initial notes). The simultaneous assignment of the final rating to the first new notes with the affirmation of initial notes rating is based on Fitch's assessment of the underlying collateral, available credit enhancement and the transaction's legal structure.
At the closing of each issue, the issuer advanced the proceeds to the borrower, which in turn made certain intra-group loans to property holding limited partnerships to complete the refinancing. Each of the loans to the borrower accrues interest at the same fixed rate as the respective note class, with the borrowing group indemnifying the issuer for all incurred costs.
The transaction is able to accommodate the issue of the first new notes as long as the borrower's debt profile remains within certain covenanted levels, and is subject to a maximum loan-to-value ratio (LTV) of 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 have reached 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 issue of the first new notes the LTV will be 49.8% and ICR 3.1x, a slight improvement compared with a LTV of 49.9% previously, and well within their covenanted levels.
Following the issue of the first new notes, total borrower debt increased to GBP590m, comprising the two securitised loans (a 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 ratings.
As well as the additional debt issue, 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 diverse, spread over 19 cities/towns, with the top five geographical concentrations representing 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 final rating.
HSBC Bank plc (AA-/Stable/F1+) is the issuer account bank and liquidity facility provider to the issuer and the available liquidity facility is increased in size 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 notes rating of shift in vacancy and rental value decline:
Current 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 notes rating of shift in the capitalisation rate:
Current rating: ' Asf'
Increase of 10% of capitalisation rate assumptions: 'Asf'
Increase of 20% of capitalisation rate assumptions: 'BBBsf'
Expected impact upon the notes rating of shift in capitalisation rate, vacancy and rental value decline assumptions:
Current rating: 'Asf'
Deterioration in all factors by 10%: 'BBBsf'
Deterioration in all factors by 20%: 'BBsf'A new issue report is available at www.fitchratings.com
Link to Fitch Ratings' Report: Unite (USAF) II plc
HSBC Holdings (HSBA)
