Dec 21 -
-- The transactions are U.K. corporate securitizations of a portfolio of
hospitals, let to BMI Healthcare, part of the General Healthcare Group.
-- At closing, the issuers purchased portions of senior loans advanced to
property-owning companies (PropCos).
-- The loans are scheduled to mature in late 2013. In our view, it will
be difficult to refinance the whole loan to the PropCos.
-- Any workout process will be complicated by the whole loan leverage,
the presence of material senior-ranking financial liabilities in the form of
out-of-the-money interest rate swaps and medium-term pressure on EBITDAR
rental coverage levels.
Standard & Poor's Ratings Services today lowered its credit ratings on all classes of notes
issued by Theatre (Hospitals) No. 1 PLC and Theatre (Hospitals) No. 2 PLC (see list below).
Today's rating actions predominantly reflect the refinancing risks relating to
the underlying loans at the expected maturity date in October 2013, and
consider recovery prospects upon assumed failure to refinance given the
leverage of the transaction in the context of the tenants' assumed
"satisfactory" business risk profile. Our ratings address the issuer's ability
to make timely payment of interest and payment of principal not later than the
legal final maturity.
The transactions are "OpCo/PropCo" structures whereby the issuers each
purchased portions of senior loans extended to a PropCo group. A pari passu
senior portion remains outside the securitizations, as does junior-ranking
debt. The relationship between the minority senior lenders, the Theatre 1
noteholders, and the Theatre 2 noteholders is governed by an intercreditor
The securitized portfolio consists of 35 hospitals, primarily based in London
and the southeast. The PropCos lease the properties on a full repairing and
insuring basis, expiring in 2031, to BMI Healthcare (the "OpCo"), as tenant,
part of the General Healthcare Group (GHG). The PropCos make up a substantial
part of GHG's EBITDA and assets. The rental payments received from the OpCo
provide the only source of income for the borrowers to make ongoing
debt-service payments on the loans and ultimately the notes.
GHG is the No. 1 independent acute medical/surgical hospital operator in the
U.K. Its main revenue source is through patients on private medical insurance
(PMI) schemes, although because of the state of the U.K. economy, the
proportion of revenues from further collaboration with the National Health
Service is expected to rise in future. The U.K. private health care market is
highly concentrated, and GHG is one of four main players that together provide
more than 70% of the sector's capacity.