TEXT-S&P affirms all ratings in M&B U.K. Pub securitization

Thu Dec 20, 2012 8:27am EST

Dec 20 -

-- We have reviewed the performance of U.K. corporate securitization Mitchells & Butlers Finance PLC (M&B Finance).

-- M&B Finance's securitized pub estate has performed in line with our expectations for financial year 2012.

-- We have therefore affirmed our ratings on all classes of notes issued by M&B Finance.

-- M&B Finance is a corporate securitization backed by operating cash flows from an estate of managed pubs owned by Mitchells & Butlers Retail Ltd. The original transaction closed in November 2003, and was tapped in September 2006.

Standard & Poor's Ratings Services today affirmed its credit ratings on all classes of notes issued by U.K. pub securitization Mitchells & Butlers Finance PLC (M&B Finance).

Today's affirmations reflect the transaction's performance in line with our expectations for financial year 2012. The transaction is backed by operating cash flows from an estate of managed pubs owned by Mitchells & Butlers Retail Ltd. (M&B Retail). The ratings reflect our assessment of the borrower, M&B Retail's "satisfactory" business risk profile, as well as the transaction's structural credit enhancements. Our ratings address the issuer's financial ability to make full and timely payment of interest and principal.

In terms of dealing with the current challenges, such as a decrease in consumer confidence and spending, increased tariffs, and continued pressure from the off-trade, overall, to date, M&B has emerged from these better than most of its peers and currently has the highest business risk score of all pub transactions we rate. Over the 12 months to Sept. 29, 2012, revenues from the securitized estate increased by 6.4% and EBITDA increased by 3.4%. The rolling four-quarter EBITDA for the securitization is within the scope of our recession stresses.

We subject the transaction to cash flow stresses to test the sufficiency of the free cash flow generated by the securitized estate to service debt payments. When reviewing the transaction we also take into account the structural enhancements present in the deal such as a GBP295 million liquidity facility and also covenants, which, if breached, could restrict payments outside of the securitization group. While for the other tranches, the borrower generates sufficient cash flow to cover debt service, the class B and class C notes are reliant upon these structural credit enhancements to fully service the debt obligations under our cash flow stresses commensurate with the current rating levels.

In February 2012, we lowered our ratings on the Class A1N, A2, A3N, and A4 notes to 'A+ (sf)' from 'AA- (sf)'. These downgrades were purely driven by our rating actions on the Royal Bank of Scotland PLC (RBS; A/Stable/A-1) and Citibank N.A (Citi; A/Negative/A-1). RBS and Citi provide support to this transaction in the form of hedge agreements to mitigate interest rate and currency risks. The hedge documentation does not fully reflect our 2012 counterparty criteria and therefore the maximum rating on the notes issued by M&B Finance is one notch above the long-term 'A' credit rating on RBS and Citi. Consequently, a rating action on RBS or Citi could affect the ratings on the notes issued by M&B Finance.

M&B Finance is a corporate securitization backed by operating cash flows generated by the borrower, M&B Retail, which are the primary source of repayment of an underlying issuer-borrower secured loan. M&B Retail operates an estate of managed pubs. The original transaction closed in November 2003, and was tapped in September 2006.

RELATED CRITERIA AND RESEARCH

Related Criteria

-- Counterparty Risk Framework Methodology And Assumptions, Nov. 29, 2012

-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012

-- European Legal Criteria For Structured Finance Transactions, Aug. 28, 2008

-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

-- Methodology For Rating And Surveilling European Corporate Securitizations, Jan. 23, 2008

-- Overview Of Legal And Analytical Challenges In Rating U.K. Corporate Securitizations, Jan. 18, 2007

Related Research

-- The Eurozone's New Recession-Confirmed, Sept. 25, 2012

-- European Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, March 14, 2012

-- Global Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011

RATINGS LIST

Class Rating

Mitchells & Butlers Finance PLC

Ratings Affirmed

A1N A+ (sf)

A1N (SPUR) A+ (sf)

A2 A+ (sf)

A2 (SPUR) A+ (sf)

A3N A+ (sf)

A3N (SPUR) A+ (sf)

A4 A+ (sf)

A4 (SPUR) A+ (sf)

AB A (sf)

AB (SPUR) A (sf)

B1 A (sf)

B2 A (sf)

C1 BBB+ (sf)

C2 BBB+ (sf)

D1 BBB (sf)

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