Feb 22 - Fitch Ratings says that amendments to Bruntwood Alpha PLC, as agreed by noteholders on 19 February 2013, do not have an immediate impact on the notes' current ratings:
Class A notes (XS0283194792): rated 'Asf'; Outlook Stable
Class B notes (XS0283196490): rated 'BBBsf'; Outlook Stable
Class C notes (XS0283199593): rated 'BBsf'; Outlook Negative
Following analysis of the publicly available terms and documentation, Fitch does not view the amendments as equivalent to a distressed debt exchange, according to its criteria (see 'Distressed Debt Exchange Criteria for Structured Finance', dated 6 July 2012 at www.fitchratings.com). The agency does not consider the amendments as designed to prevent a note event of default. Furthermore, the increase in note margin provided some incentive for noteholders to sign up to the package of changes.
The restructuring centres on a two-year extension of the notes and one of the two loans, the GBP229.2m B2000 loan, in exchange for which noteholders have been offered an increase in margins, albeit on a staggered basis.
The B2000 loan extension is subject to GBP66m being repaid on an agreed schedule. It is envisaged that GBP48m will be repaid via a further asset disposal plan, GBP4.5m via excess rental income, and the remainder, GBP13.5m, by way of voluntary repayments (although only GBP5m equity injection is covenanted). Holding property values constant, this plan should allow for deleveraging of the loan to a 59% loan-to-value ratio (LTV) by January 2016 (from 76% currently). Reinforcing this, the LTV covenant is scheduled to reduce to 70% by 2015, bolstered by continued yearly valuations.
Notably, Bruntwood is not seeking to extend the January 2014 maturity date of the other loan, the GBP203.4m BE loan, which implies it has greater confidence in its ability to redeem this loan in the short term. This is reinforced by its successful refinancing of some of the collateral. The BE borrower has recently exercised its right to release six collateral properties - including the clear trophy asset in the CMBS portfolio - for which the loan was partially prepaid in line with the originally documented release pricing.
The substantial prepayment has not reduced overall leverage because the 15% release premium (RP) is in addition to an allocated loan amount (ALA) set at closing, since when the sold assets had appreciated in value by an offsetting amount. However, future collateral releases have been made subject to more stringent release pricing, with the LTV implied by the ALA re-set against a September 2012 valuation.
Principal allocation to notes from collateral disposals will remain pro-rata up to the ALA, with the RP distributed sequentially (along with swept cash). While this suggests improvement in senior advance rates over time will be modest, Fitch understands that the borrower intends to make a one-off equity-like injection by subordinating interests it has acquired (or will acquire) in the notes to those of other noteholders. Notably while interest will continue to accrue on re-acquired notes (at the original rate), return of principal will be deferred until the other noteholders have been repaid, pending which diverted principal will be paid out sequentially.
While Bruntwood has demonstrated a commitment to capital expenditure, the exposure to secondary locations in the remaining portfolio is of some concern, as indicated at the time of the last rating action in August 2012. However, Fitch notes that the one open market sale executed since then was at a price in excess of the valuer's estimate.