May 24, 2017 / 4:42 PM / 3 months ago

Fitch Rates Voyage Care Bonds 'BB-'/'B-'

(The following statement was released by the rating agency) LONDON, May 24 (Fitch) Fitch Ratings has assigned Voyage Care Bondco PLC's GBP215 million senior secured notes an instrument rating of 'BB-' with a Recovery Rating of 'RR1' (100% recovery rate in the event of default) and GBP35 million second lien notes an instrument rating of 'B-' with a Recovery Rating of 'RR4' (33% recovery rate). Fitch has also affirmed the 'B-'Long-Term Issuer Default Rating (IDR) for Voyage Bidco Ltd. (Voyage) with Stable Outlook. The new notes were used to refinance Voyage's existing GBP222 million senior notes maturing in August 2018 and GBP50 million second lien notes maturing in February 2019. These notes were redeemed on 13 May 2017. In addition, the refinancing saw an equity contribution of GBP28 million into the business and provided a GBP45 million revolving credit facility (RCF), resulting in slightly better rating headroom. The transaction has addressed Voyage's short-dated capital structure and improved the company's liquidity profile over the medium term. The modest equity injection as well as the lower senior and second lien debt amounts, have been reflected in our updated Recovery Ratings. We base our recovery analysis on a liquidation approach given Voyage's significant owned real estate portfolio. KEY RATING DRIVERS Significant Asset Base: The instrument ratings and recovery prospects of Voyage are underpinned by its ownership of 90% of its registered properties. Valued at GBP360 million in November 2016 (freehold and long leasehold assets), Voyage's strong portfolio of freehold assets properties gives the company greater operating flexibility due to lower rental costs. This underpins our superior recovery expectations for the secured notes, which are reflected in the instrument rating being three notches above the IDR. Fitch bases its recovery analysis on the company's underlying asset values, by applying a liquidation approach. Average Recovery Prospects for Second Lien Notes: Based on our recovery assumptions, the second lien notes carry moderate recovery prospects in a default scenario given their subordination to the super senior RCF and senior secured notes in the debt waterfall. This is reflected in the instrument rating of 'B-'/'RR4'. Pressure on Credit Metrics: Fitch conservatively expects funds from operations (FFO) adjusted net leverage to peak at above 7.5x in financial year ending March 2018 (FY18), with only gradual and modest deleveraging thereafter. The anticipated increase in leverage and weak free cash flow (FCF) generation, together with FFO fixed charge cover of just above 1.5x, underpin the IDR of 'B-'. However, we expect slightly better financial flexibility by way of lower interest costs leading to improved free cash flow (FCF) generation and FFO fixed charge cover trending towards 2.0x by FY19. Diversified Services Support Credit Profile: Voyage's business risk profile is supported by a diversified service offering covering the full spectrum of social care needs for people with learning disabilities in either a registered care home, a supported living setting or as outreach services. Voyage's service line diversification provides resilience to the tightening in registered care homes eligibility criteria set by local authorities as they move towards less costly options such as supported living and domiciliary care. Meaningful Execution Risk: Voyage's strategy is to expand substantially its community-based care services business, which bears some execution risks in our view. However, Fitch sees Voyage's ability to offer the full service spectrum to local authorities as a key competitive advantage compared with smaller, less diversified players. Dependence on Local-Authority Funding: Voyage's ratings are constrained by a high dependence on local government, which accounts for around 90% of the company's funding. Due to the current reduction in UK local-authority budgets, Fitch expects the average level of fees paid by them to remain under pressure. The implementation of the council tax precept (an option to increase council tax with revenues ring-fenced for social care) by the majority of local authorities has resulted in an increase in average fees, although not sufficient to compensate fully the existing underfunding of care, which has been exacerbated by the introduction of the National Living Wage. As a result, Fitch expects Voyage EBITDA margin to remain under pressure. Volatile Outlook for UK Social Care: The UK social care market will remain difficult, entering a period of short-term volatility, characterised by continued growth in demand, further expected wage inflation and potentially widening labour shortage as a result of the focus on limiting immigration. Fitch is sceptical about the current political will and ability to address the long-term funding issues given the current political priorities relating to Brexit and the uncertainty it presents to the long-term planning of public finances. In Fitch's opinion, this will remove some of the visibility for the sector and increase short-term volatility, which could delay any further consolidation in the short term. The subject has, however, gained greater prominence in the political debate and is emerging as a central topic in the run-up to the general election in June 2017. DERIVATION SUMMARY Fitch has observed significantly pressures on ratings in the UK leveraged care home sector that has been affected by a reduction of local authorities' fee rates in real terms, with pressures on profitability exacerbated by increasing costs as a result of the increase in the National Living Wage from April 2016. This has led to impaired profitability across the sector as cost inflation could not be passed on to payers, increasingly threatening the underlying business model of operators and making leveraged capital structures increasingly unsustainable. However, immediate funding pressures have eased as local authorities are now able to raise the social care council tax precept, which - as it is applied cumulatively over years - has alleviated imminent funding shortages. During late 2016 the sector saw for the first time funding increases, predominantly in areas of most critical needs such as elderly services. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: -Increase in sales by 3% in FY17, 6% in FY18 and around 12% thereafter, mainly driven by a significant growth of community-based care services through tender wins, together with an average 2%-3% increase in local-authority average weekly fee funding the registered care division; - EBITDA margins declining to 14.1% in 2020 from 20.3% in 2016 mainly due to a shift in Voyage's business mix with an expansion of the community base care services division which is expected to represent 45% of Voyage Care revenue in 2020 compared with 25% in 2016. In addition, payroll costs will rise due to the introduction of the National Living Wage in April 2016, which is not adequately compensated by the local authorities' increase in fees, especially for the Community Base Care Services division. - Capex at around 6% of sales up to FY18, 4% of sales thereafter. Capex is essentially maintenance capex, which is compulsory for the reputation and the occupancy rate of the business. - FCF generation flat during FY17 and FY18, followed by around 3% of sales on average. - No dividends paid. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action -Improving medium-term visibility around the sustainability of the UK social care business model, resulting in greater scale (EBITDA above GBP50 million) and/or improving profitability and cash generation along with: -FFO adjusted net leverage of 6.5x or below on a sustained basis; -FFO fixed charge coverage above 2.0x; -Sustained FCF generation translating into FCF margin of at least low -single digits as a percentage of sales. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action -Further pressure on the UK social care business model, including Voyage's inability to reposition the business model towards the growth of the assisted living sector, leading to: -FFO adjusted net leverage trending above 8.5x on a sustained basis; -FFO fixed charge coverage sustainably below 1.5x; -Sustained negative FCF generation leading to weak liquidity buffer. LIQUIDITY Fitch considers Voyage's liquidity is satisfactory with cash on balance sheet of GBP28 million post-refinancing, together with committed undrawn RCF of GBP38 million. Voyage does not have meaningful debt maturities in the near-term as the group's newly issued GBP215 million senior secured notes and GBP35 million second lien mature in 2023. Contact: Principal Analyst Louise Liu Analyst +44 203 560 1660 Supervisory Analyst Frank Orthbandt Director +44 20 3530 1037 Fitch Ratings Ltd. 30 North Colonnade London E14 5GN Committee Chairperson Pablo Mazzini Senior Director +44 203 530 1021 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Summary of Financial Statement Adjustments - Fitch adjusts financial leverage for annual lease obligations capitalising these with a multiple of 8x. We also consider GBP2 million of cash as restricted, absorbed by the group's working capital needs. Additional information is available on www.fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers (pub. 21 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below