Nursing home-backed securitizations look to be yet another non-generic asset class that the U.K. market is making its own, with the recent confirmation that health group Bupa is working with Merrill Lynch to structure a securitization backed by income from its nursing homes, in a deal worth around GBP200 million ($330 million).
The timing of the deal will depend on market conditions, but could take place before the year-end.
The news comes while Barclays Capital is on the point of launching a nursing home-backed securitization for Westminster Healthcare, worth GBP195 million (GBP135 million of double-A notes, GBP50 million of triple-B notes and a GBP10 million double-B chunk).
Sources suggested that GBP100 million of the cash raised may be used by Westminster to finance or re-finance the acquisition of Priory Hospitals, an acute psychiatric group famous for treating British celebrities such as supermodel Kate Moss and soccer player Paul Gascoigne.
According to market sources, both transactions will be long-dated, fixed rate deals, following on from the model established by securitizations from other nursing home issuers such as Nursing Home Properties (NHP), which has closed several securitizations, the most recent a GBP265 million transaction in February.
NHP is believed to be considering another issue, possibly worth around GBP200 million, while another nursing home operator, Craigmore, is examining a securitization worth around GBP100 million. Both are unlikely to be in the market until the first quarter next year at the earliest.
Sources suggested that Bupa will use the proceeds of its securitization to repay a portion of its approximately GBP600 million worth of debt, much of it taken on at relatively high interest rates, though it too may be looking at acquisitions.
Because the deals are backed by 20 to 30 year leases taken out by nursing home operators, transactions are structured with long maturities. This allows bankers to place the paper with U.K. pension and insurance companies, all of whom need long-term bonds to match their liabilities but have little to buy beyond relatively scarce U.K. government Gilts.
The nursing home securitization sector may soon face a test of its effectiveness, as nursing home operator Tamaris, a company that leases homes from NHP, is struggling. NHP's securitizations are designed to cope with the bankruptcy of an operator, which can be substituted for a similar firm. Market pros expect nothing beyond a temporary liquidity issue if Tamaris is substituted, something which should cause no problem as the deal's boast liquidity support facilities.