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 agreement.
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.