Fitch Ratings recently upgraded the junior bonds of two sale leaseback nursing home securitizations - U.K. Care No. 1 and PHF 1 Securities No. 1. The rating agency cited improvements in operating performance. Fitch also affirmed the junior Class B and Class M notes of Tiara Securities Issuer B.V. at BBB+' and A+', respectively. The Class A notes of the transaction were affirmed at AAA'.
There are six sale leaseback transactions of U.K. care homes outstanding backed by three different originators - BUPA, NHP and Four Seasons. Under the sale leaseback structure, the property company as a borrower issues notes via an issuer SPV and uses the proceeds to buy the freehold or long leasehold interests in care home properties. It then leases back the care homes to the operators (either in-house or third-party) and receives a rental or lease payments sufficient to service the debt. Fitch said that all of the outstanding transactions also benefited from a zero-coupon swap placed with a AAA'-rated counterparty for the redemption of senior note (and junior note in the case of Care Homes) principal at maturity.
Fitch upgraded the class A2 notes in PHF to BBB' from BBB-' and affirmed the class A1 notes at AAA'. The agency had already upgraded the junior tranche of the PHF transaction to BBB-' from BB' on the back of improved coverage. In the case of PHF, the positive rating action brings the subordinated note rating back to where it was prior to the downgrade to double-B in December 2002. Fitch said this was a testament to the business turnaround over the past three years. PHF's junior class is now one notch lower than the BBB+' rating of Tiara Securities Issuer BV's Class B. PHF and Tiara's properties are both managed by Four Seasons, the company which also acts as asset manager for those transactions.
Fitch also upgraded the class A2 junior tranche of U.K. Care No 1, to AA' from A+' as U.K. Care reported improved rent cover ratios, strong and resilient performance and a greater cushion in its ability to sustain increased rent levels. Fitch said it continued to see strong resilience in the performance of sale leaseback nursing home transactions and positive medium- and long-term fundamentals in the U.K. care sector.
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