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Rating Action:

Moody's affirms Global Switch's Baa2 ratings; outlook remains stable

16 May 2019

London, 16 May 2019 -- Moody's Investors Service (Moody's) has today affirmed the Baa2 long-term issuer rating and the senior unsecured bond rating of Global Switch Holdings Ltd (Global Switch), a real estate company that owns large scale data centres. The outlook remains stable.

Please refer to the end of this press release for a full list of affected ratings.

RATINGS RATIONALE

Global Switch's Baa2 long term issuer rating reflects its strong position in the data centre real estate market spread across key cities in Europe and Asia-Pacific. The rating is well supported by the company's modest 20.8% leverage, a strong 7.2x fixed charge coverage, and fully unencumbered assets as of 31 December 2018. The rating also reflects the positive operating environment for data centre operators and favourable market dynamics.

Counterbalancing these strengths is the company's (1) tenant and asset concentration risk (2) limited alternative uses for its assets (3) higher operational risk compared to more traditional real estate asset classes such as offices and (4) a moderately elevated business risk as the company ramps up its expansionary development programme in Asia-Pacific markets to satisfy demand. However, the development risk is reduced by pre-commitment agreements.

The company is exploring an Initial Public Offering (IPO) on a leading international stock exchange in 2019. A successful IPO is a key credit positive that will improve access to equity capital, result in more frequent and detailed reporting, and further strengthen governance.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects Moody's expectation that the company will sustain its strong credit profile and good liquidity. The outlook also reflects a continued favourable operating environment for data centres, and the company continuing to pursue a moderate and controlled development programme.

FACTORS THAT COULD LEAD TO AN UPGRADE

• An increase in the size and diversity of the portfolio leading to a reduction in asset and tenant concentration, alongside sustained strong operational performance and a balanced growth strategy

• A successful IPO, and maintaining conservative financial policies post public listing

• Leverage as measured by Moody's-adjusted net debt/EBITDA, which was 4.4x in 2018, is maintained towards 4x (EBITDA metrics are adjusted for foreign exchange fluctuations)

• Leverage as measured by Moody's-adjusted gross debt/ total assets, which was 20.8% in 2018, remains below 30%

• Moody's-adjusted fixed charge coverage, which was 7.2x in 2018, is maintained above 5x

• Maintaining a low-risk largely pre-let development programme around the 7.5% level, as measured by Moody's metric of total costs for completion of committed developments/total assets. The company's committed development pipeline was 4.93% as of year-end 2018.

• A strong liquidity profile is maintained at all times

FACTORS THAT COULD LEAD TO A DOWNGRADE

• A sustained deterioration in occupancy rates, operating performance or financial metrics such that Moody's-adjusted fixed charge coverage falls below 4.0x or Moody's-adjusted net debt/EBITDA rises sustainably above 5.5x

• Leverage, as measured by Moody's-adjusted gross debt/ total assets, is sustained above 35%

• Weak liquidity or failure to address upcoming debt maturities well in advance or a sharp increase in development activity, especially if it is on a speculative basis

LIQUIDITY

The company's good liquidity, which as of 31 December 2018, was underpinned by:

• GBP88 million of cash and cash equivalents

• GBP402 million of drawing capacity under a GBP425 million multi-currency revolving credit facility (RCF) maturing in April 2021, with the option of two further one year extensions. The first year extension is the right of the borrower while the second extension is at the discretion of the lenders. The RCF ranks on a senior unsecured basis.

• More than GBP200 million of reported annual net cash from operating activities

• A GBP5.68 billion pool of unencumbered investment properties that can be sold or used to raise secured bank debt if needed, providing an alternative source of liquidity

The company has adequate resources to meet its cash needs for at least the next 12 months. With no announced dividend payments and no material debt maturities until December 2022, the main demand on cash comes from more than GBP300 million of annual capital spending.

The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms published in September 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

PROFILE

Global Switch owns, develops, and operates large scale multi-tenanted data centres that are carrier and cloud neutral. The company owns 12 data centres valued at GBP5.9 billion across eight cities in Europe and Asia-Pacific that generated GBP399 million of revenues in 2018, including GBP285 million of rental and service fee income and GBP114 million from the provision of power and other services.

Global Switch is jointly controlled by Aldersgate Investments Limited (which owns 24.01%), Elegant Jubilee Ltd (which owns 51%) and Strategic IDC Ltd (which owns 24.99%).

Affirmations:

..Issuer: Global Switch Holdings Ltd

.... Issuer Rating, Affirmed Baa2

....Backed Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa2

....Backed Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

Outlook Actions:

..Issuer: Global Switch Holdings Ltd

....Outlook, Remains Stable

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Ramzi Kattan
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Richard Etheridge
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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