May 30 - Fitch Ratings has affirmed THPA Finance Limited's (THPA) notes and revised the Outlooks to Stable. A full list of rating actions is below.
Fitch has revised the Outlook on the notes to Stable from Positive, as the recent challenging economic environment has caused the transaction to underperform previous expectations, negating the rationale for a potential upgrade. However, revised and more modest base case forecasts, which include the return of steel production, support the affirmation of the ratings. Fitch does not consider the lack of availability of the liquidity facility for the Class B notes and Class C notes materially prejudicial to the current ratings of the junior notes. A possible reduction of the interest rate on the Class C notes could create additional coverage headroom within the issuer-borrower structure in the near term.
Fitch's adjusted trailing 12 months (TTM) EBITDA as of end December 2011 (excluding one-off items) was GBP34.9m. This is below the agency's forecast of GBP37-39m made in 2009 and including the impact of the mothballing of the Redcar steel plant on THPA. EBITDA has been impacted by the challenging economic environment, leading to reduced volumes handled, although improved cargo mix and tariff increases have at least partially helped to protect revenue.
Although the ramp-up of steel production at Redcar steel plant (located close to Teesport) from April 2012 is a credit positive, under Fitch's current base case it will be insufficient to 'catch-up' EBITDA lost as a result of the above macroeconomic disruptions. Fitch notes that the majority of traffic remains associated with steel, chemical and oil industries located in the vicinity of the port, although management continues to diversify into other revenue sources.
Debt service (interest and principal) markedly increased in September 2011 following a resumption of principal amortisation on Class A2 notes and a step-up in interest on Class C notes, reaching a peak in September 2012. Fitch forecasts that the returning imports of iron ore and coal and the slab steel exports will increase the TTM EBITDA in December 2012 to GBP38.3m and the transaction will avoid breaching its borrower default covenant, set at 1.25x of EBITDA debt service coverage ratio (DSCR). Within the next two years, Fitch expects EBITDA DSCR metrics to return to the range set in 2009 (1.30x-1.40x for Class C, 1.60-1.70x for Class B and 2.20x-2.30x for Class A).
The agency notes the discrepancy between THPA's offering circular and the legal documentation resulting in a lack of availability of the liquidity facility for the Class B and C notes. This is not materially prejudicial to the current ratings of the junior notes because, in the event of a short-term shock, junior debt service can be deferred. Fitch's analysis is aligned with the transaction documentation, so any deferral of junior debt service does not represent a payment default until the final maturity of each respective note.
Fitch understands that THPA is exploring the possibility of reducing the interest rate on Class C notes to 10% p.a. from 18% p.a. This could provide additional coverage headroom within the issuer-borrower structure. Given that all the Class C notes are currently owned by the securitisation sponsor, Fitch perceives that any such reduction would be "soft equity support" rather than distressed debt exchange.
THPA is a securitisation of the assets held, and earnings generated, by the PD Ports group, which owns the port of Tees & Hartlepool on the northeast coast of England. Teesport is the fifth-largest port in the UK per annual tonnage handled and mainly serves the steel, petrochemical, chemical, manufacturing and retail industries.
The rating actions are as follows:
GBP145m class A2 secured 7.127% fixed-rate notes due 2024: affirmed at 'A-'; Outlook revised to Stable from Positive
GBP70m class B secured 8.241% fixed-rate notes due 2028: affirmed at 'BB+'; Outlook revised to Stable from Positive
GBP30m class C secured 18.000% fixed-rate notes due 2031: affirmed at 'BB-'; Outlook revised to Stable from Positive