At least three deals from nursing home operators or owner/operators are currently in the market or on their way, despite recent newspaper reports of turmoil in the U.K. nursing home sector.
The first to launch was a GBP195 million ($319 million) deal from Westminster Health Care, via lead manager Barclays Capital. It is the first long-dated fixed rate securitization from a nursing home owner/operator, as the previous deals in the sector were backed by the leases paid by multiple operators to the home owners, plus the ownership of the homes themselves.
The transaction was chopped into three tranches: a GBP130 million piece, due 2028, rated double-A by Duff & Phelps (DCR) and Fitch IBCA; a GBP55 million piece, due 2030 rated triple-B; and a double-B tranche worth GBP10 million and due 2030. Pricings were 190 basis points over the benchmark gilt, 330 over and 750 over respectively.
According to Barclays officials, the deal was primarily placed with U.K. pension funds and insurance companies.
An investor who has purchased the bonds dismissed concerns about bankruptcies in the sector as largely irrelevant because Westminster owns and operates one of the most modern set of homes in the industry. "The operators that are struggling own old-fashioned facilities that aren't very popular. That is not the case here," he said. "What risk there is comes from the operating risk that Westminster will continue to perform."
On the other hand, nursing home owner NHP's GBP194 million transaction, which is set to launch this week via J.P. Morgan and Dresdner Kleinwort Benson, relies on the diversity of the operators which lease the homes from NHP, plus the underlying value of the properties. The transaction is NHP's third deal and is dubbed Care Homes 3.
The fixed rate bullets have a 29 year expected maturity and are split into a triple-A tranche worth GBP128 million, a single-A piece worth GBP42 million and a double-B tranche worth GBP24 million. The ratings come from Standard & Poor's and DCR. The principal on the triple-A tranche is defeased on a triple-A zero coupon bond from the European Investment Bank.
Any concerns about the troubles among the operators are allayed by the ease with which bankrupt operators can be substituted by others, as shown by the performance of NHP's previous deals, which have seen struggling operators taken out of the picture very quickly. The fact that NHP also has two months worth of rent deposits and that the properties are likely to continue generating income anyway guards against a short fall in cashflows, experts said.
A deal from owner/operator Bupa is also soon to be launched, via Merrill Lynch, though the timing of that deal may depend on precise market conditions and likely pricing.