(Repeat for additional subscribers)
June 2 (The following statement was released by the rating agency)
Fitch Ratings has assigned Bupa Finance plc's (BF) planned issue of fixed-rate senior notes an expected senior unsecured rating of 'A-(EXP)'. The final rating for the bonds is contingent upon the receipt of final documents conforming to information already received by Fitch.
The fixed-rate senior notes will be guaranteed by The British United Provident Association Ltd, BF's parent company. The bond will be used to pay back the outstanding GBP300m acquisition financing facility negotiated in December 2013 as well as reduce drawings under bank loans.
The proposed issue will lengthen the company's debt maturity profile as it refinances the short-dated acquisition bridge financing and improves liquidity headroom under BF's bank facility, improving overall liquidity.
KEY RATING DRIVERS
Structural Subordination Mitigated The bonds are rated in line with BF's Issuer Default Rating (IDR) and senior unsecured rating of 'A-', as they will constitute direct, senior, and unsecured obligations of BF.
Unlike the 2016 senior notes and the bank debt, the planned bond will not be guaranteed by any of the group's subsidiaries. Hence, Fitch will classify the planned bond as subordinated to the 2016 senior notes and the bank debt, which benefit from additional intermediate holding company guarantees, and to other debt at operating company level.
Nevertheless, we have aligned the senior bond rating with BF's 'A-' IDR as prior-ranking debt/EBITDA is under 1x, well below Fitch's threshold of 2x-2.5x for structural subordination. Furthermore, Fitch does not expect this ratio to increase above 2x in the near future. Fitch expects that future debt will be raised using the current structure (only guaranteed by parent company and not subsidiaries) and that any further subordination would be temporary until the existing GBP350m bond matures in 2016. This should result in the new bond and the bank debt security structure being aligned.
Prospective Deleveraging Drives IDR Affirmation
Fitch affirmed BF's IDR at 'A-' with a Stable Outlook on 30 May 2014, reflecting Bupa Group's ability to operate successfully in a highly competitive market and to develop its business model outside established markets. Following a period of significant acquisitive growth, which has increased its size, scale, geographic reach, and diversification of cash flows resulting in an improved business risk profile, BF has, however, exhausted its financial headroom under the current ratings.
Fitch expects weak credit metrics in 2014 as a result of the recent acquisitions; however the Stable Outlook reflects our expectation that the group will now focus on the integration of acquired assets and on delivering the associated synergies and growth opportunities, which the agency believes carry limited execution risks. As a result, Fitch expects BF's debt protection ratios to restore headroom under the 'A-' rating within the next 12 to 18 months.
The bond's rating is sensitive to changes in BF's IDR and hence senior unsecured rating.
Please refer to the separate commentary 28 May 2014 for BF's Key Rating Drivers & Rating Sensitivities.