July 18 -
Summary analysis -- Catalyst Healthcare (Romford) Financing PLC --- 17-Jul-2012
CREDIT RATING: None. Please see issue list. Country: United Kingdom
Primary SIC: Special Purpose
The 'AA-' insured debt rating on the GBP128.4 million senior secured bonds due 2038 and the GBP100 million senior secured European Investment Bank (EIB) loan due 2034, issued by Catalyst Healthcare (Romford) Financing PLC (the Issuer), reflects the unconditional and irrevocable payment guarantee of scheduled interest and principal provided by Assured Guaranty (Europe) Ltd. (AA-/Stable/--), formerly Financial Security Assurance (U.K.) Ltd. The 'BBB-' Standard & Poor's underlying (SPUR) debt rating on the bonds and loan reflects a composite of credit factors.
The 'BBB-' SPUR on the debt reflects the following credit weaknesses:
-- Aggressive financial structure. This features high debt leverage (calculated as senior debt to total available funding) of 91% as of March 2012; a significantly back-loaded senior debt amortization profile, with 72% of debt retiring in the last 10 years and 43% in the last five years; and relatively tight annual debt service coverage ratios (ADSCRs). According to the financial model dated March 2012, the ADSCRs are 1.23x minimum occurring towards the end of the concession in 2037 and 1.28x average when calculated in line with the project's financial documentation, or 1.18 minimum and 1.24x average when calculated in line with our criteria (that is, excluding interest income).
-- Exposure to an imperfect hedge. This is because various elements of the financial structure--such as the bonds and EIB loan, unitary payments, and operational costs--are indexed against the retail prices index (RPI) but with different effective dates. The project is sensitive to both volatile and high inflation scenarios.
-- Relative to other NHS Trusts operating in the U.K., an operationally and financially challenged main revenue counterparty in Barking, Havering, and Redbridge University Hospitals NHS Trust (the Trust). Senior management changes at the Trust were announced in June 2012, although as yet the identity of those leaving is still unknown. A report released in June 2012 by the Care Quality Commission (CQC), a government health inspector, states that more than half of its clinical recommendations made in 2011 have been dealt with, while the others are progressing well. The commission mentions, however, that although significant improvements have been made by the Trust across maternity and radiology services, it still has serious concerns over the accident & emergency (A&E) department, but acknowledges recent positive results.
-- Inclusion of the managed medical equipment services and telephony into the scope of the PFI contract. However, these services are ring-fenced from the project, and are subcontracted to Siemens Healthcare Services, a trading division of Siemens AG (A+/Positive/A-1), which has extensive experience and capabilities in the provision of medical equipment.