March 20, 2012 / 4:37 PM / 5 years ago

TEXT-Fitch cuts Titan Europe 2006-4 class A1 to 'A'

March 20 - Fitch Ratings has downgraded Titan Europe 2006-4 FS plc's (TE
2006-4 FS) GBP420.3m class A1 secured floating-rate notes, due September 2014,
to 'A' from 'AA' and placed them on Rating Watch Negative (RWN).	
	
The rating actions are mainly a result of the increased refinancing risk
embedded within the transaction with the underlying whole loan and notes
maturing in just 6 and 30 months, respectively. In addition to the shortened
timeframe, Fitch notes that the combined effect of the volatile debt market
(exacerbated by the ongoing eurozone debt crisis) and general uncertainty
regarding the short to medium-term funding of social healthcare (mainly by the
local authorities (LAs) and NHS) add further challenges to any potential
refinancing or sale of the assets. Fitch also notes that the company has elected
not to make the minimum prepayment of GBP100m of class A1 notes in January 2012
as agreed at the last 2010 restructuring. This has resulted in a step-up of
interest margins on all notes. However, the rating does not address the step-up
margin, as their non-payment does not constitute a note event of default.	
	
Fitch expects to resolve the RWN when more details of the envisaged refinancing
plan are made available by the company. Fitch takes some comfort that management
is actively working on a number of refinancing options and that complex capital
markets transactions have recently been successfully launched (such as Center
Parcs GBP1.0bn WBS debt refinancing (CPUK Finance Ltd), albeit in a different
industry (holiday parks)). Notably, the company communicated on 1 March 2012
that it has "received a number of expressions of interest in respect of equity
raising", and is currently considering all options namely "debt refinancing, new
equity from existing shareholders, as well as potential funding from new
investors or combinations of these options". Fitch is closely monitoring the
situation and may take further rating action depending of the outcome of the
negotiations.	
	
Despite the increased refinancing risk, Fitch still considers the class A1 notes
to have strong investment grade attributes, namely a solid loan-to-value at just
above 60% based on Fitch's conservative portfolio valuation of c. GBP720m (which
is 23.3% below Knight Frank's October 2011 portfolio valuation). In addition,
the transaction benefits from Four Seasons Health Care's relatively strong
operations, with 2011 EBITDA having grown by c. 4% to GBP101.3m partly as a
result of improving KPIs such as occupancy (averaging almost 87.5%) and savings
in employment costs. This performance was achieved despite challenging market
conditions with below-inflation fee increases, notably from the cash-trapped
LAs.	
	
In the short term, Fitch expects EBITDA to grow further in 2012 to just below
GBP110m despite further EBITDA margin compressions to c. 15% down from 19.2%.
The increase is expected to result mainly from the increased number of beds
following (i) the recent acquisitions of both Care Principles (a specialist care
provider) and 94 short leaseholds, and (ii) the investment take-back of freehold
homes previously rented to the now-dismissed Southern Cross. Margins should be
impacted by increased rental payments and further below-inflation increases in
average weekly fees (notably by LAs).	
	
Despite the short to medium-term uncertainty regarding the funding of social
healthcare, Fitch believes that the elderly care homes market benefits from good
long-term prospects underpinned mainly by the favourable demographic trends and
the critical need to have the private operators up and running given the
healthcare authorities reliance to the independent sector having 80% of the
market outsourced (source: Laing & Buisson). Fitch believes that Four Seasons
Health Care is well placed to benefit from this trend, given its firm and
leading position in the UK elderly care home market and its increasingly more
specialised operations to the more resilient acute elderly care (e.g. dementia
care). The company has been in existence since 1987 and, following its recent
acquisitions and the dissolution of Southern Cross, has recently moved to first
position (from third) in terms of number of available beds in the UK
(representing c. 5% of total beds).	
	
TE 2006-4 FS is the issuer of a securitisation of a GBP595.3m senior loan
granted to UK nursing homes mostly operated by Four Seasons Health Care (Four
Seasons). The securitisation has two classes of notes: the A1 senior notes and
the unrated A2 subordinated notes.	
	
Contact:	
	
Primary Analyst	
Julian Dupont	
Director	
+44 20 3530 1138	
Fitch Ratings Limited	
30 North Colonnade	
London E14 5GN	
	
Secondary Analyst	
Stefan Baatz	
Senior Director	
+44 20 3530 1134	
	
Committee Chairperson	
Dan Robertson	
Managing Director	
+44 20 3530 1312	
	
Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:
peter.fitzpatrick@fitchratings.com.	
	
Additional information is available on www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.	
	
Applicable criteria, 'Rating Criteria for Infrastructure and Project Finance'
dated 16 August 2011, 'Rating Criteria for UK Whole Business Securitisations',
dated 12 August 2011, and 'EMEA CMBS Rating Criteria', dated 4 April 2011', are
available at www.fitchratings.com.	
	
Applicable Criteria and Related Research:	
Rating Criteria for Infrastructure and Project Finance	
Rating Criteria for UK Whole Business Securitisations	
EMEA CMBS Rating Criteria	
	
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
here. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF
CONDUCT' SECTION OF THIS SITE.	
	
	
     	
	
    Criteria	
    Regulatory	
    Form NRSRO	
    Terms Of Use	
    Endorsement Policy	
    Privacy Policy	
    Code of Ethics	
    Site Index	
    Press Room	
	
Copyright © 2012 by Fitch, Inc., Fitch Ratings Ltd. and its subsidiaries.	
Home	
Ratings and Research	
Tools	
Products and Services	
Fitch Training

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below