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I AGREE
25 Jun 2018
London, 25 June 2018 -- Moody's Investors Service ("Moody's") has today
assigned Baa2 guaranteed ratings to the GBP250 million senior secured
bonds due in 2019, the GBP250 million senior secured bonds due
2020, the GBP270 million senior secured bonds due 2026,
and the GBP250 million senior secured bonds due 2029 (the Senior Bonds)
issued by Porterbrook Rail Finance Limited (the Issuer). At the
same time Moody's assigned Baa2 ratings to the GBP100 million
Series A senior secured notes due 2028, the GBP100 million Series
B senior secured notes due 2028, the GBP100 million Series C
senior secured notes due 2031, the backed GBP250 million senior
secured loan maturing in 2036, the GBP285 million senior secured
term loan A1 maturing in 2022, the GBP100 million senior secured
term loan A2 maturing in 2028 and the GBP500 million senior secured
revolving bank facility maturing in 2023 (the Senior Loans, and
together with the Senior Bonds,the Senior Debt) raised by the Issuer.
Moody's also assigned a provisional (P)Baa2 backed rating to the
Issuer's GBP3 billion medium-term note programme.
The outlook is stable.
The Issuer and its subsidiaries form Porterbrook, one of the three
principal UK rail rolling stock leasing companies. The group enters
into long-term leases to supply passenger rolling stock to train
operating companies (TOCs) and locomotives and wagons to freight operating
companies (FOCs), and may also provide rolling stock lifecycle maintenance
and asset management services. The group also leases certain station
equipment.
RATINGS RATIONALE
The Baa2 Senior Debt ratings reflect as positives 1) the stable and predictable
nature of Porterbrook's passenger train leasing revenues,
2) limited operational risk, 3) a track record of stable oversight
and support from the UK Department for Transport (DfT), albeit tempered
by recent franchising developments, 4) a strong long-term
passenger growth outlook and 5) the creditor protective features of Porterbrook's
ring-fenced financing structure. At the same time,
the ratings are constrained by 1) exposure to train re-leasing
risk, 2) fleet concentration, 3) refinancing risk and 4) high
leverage.
Demand for passenger rail services in the UK has grown strongly since
privatisation and, notwithstanding some recently reported data,
the industry expects it to continue to do so. The UK government,
through the DfT, has historically supported this growth with consistent
regulation and oversight, particularly via the franchising process.
Recent franchise awards have included the procurement of new trains,
which will result in the displacement of a significant numbers of trains
that have not reached the end of their expected useful life, a negative
development for the incumbent ROSCOs.
According to the Office of Road and Rail (ORR), total passenger
kilometres travelled on franchised routes grew to 65.8 billion
in 2017, from 28.8 billion in 1994, an average annual
growth rate of 3.7%. The UK passenger rolling stock
fleet has not kept pace. The fleet totalled just under 13,400
in March 2017, an increase of just over 20% from the circa.
11,000 vehicles in operation at privatisation. The average
fleet age has also increased, to 21 years in 2017 from 15 years
in 2007.
The arrival of new Thameslink trains, combined with major delays
to Network Rail's electrification programme, has long been expected
to generate a temporary oversupply of electric multiple units (EMUs) in
the rail system. The DfT's recent franchising preference for new
build trains will add to this oversupply. And new train build costs
are currently very low. 'In the medium term, Moody's
expects that Porterbrook will face significant competition from 1) trains
displaced from other franchises and/or 2) new build solutions, especially
for EMU fleets' says Tomás O'Loughlin, a Moody's
Vice President - Senior Credit Officer and lead analyst for Porterbrook
Rail Finance Limited.
He notes that 'Moody's base case assumptions for Porterbrook
incorporate conservative assumptions regarding 1) forecast re-leasing
rates and 2) the group's ability to cascade fleets that will be displaced
in the next few years'.
Porterbrook has been less active in procuring new rolling stock in recent
years, which has resulted in relatively lower financial leverage
than peers. Further, senior debtholders benefit from financing
protections that include financial metric distribution lock-up
and default tests, security over rolling stock and other key assets
and restrictions on business activities and indebtedness. However,
68% of Porterbrook's Senior Debt has bullet maturities and the
Senior Debt has a relatively short weighted average tenor of 6.7
years. While these maturities are well spread and should be manageable,
the group is exposed to the risk that debt service costs may be higher
post refinancing. We note, positively, management's
intention to refinance upcoming bond bullet maturities with longer term
amortising debt.
Notwithstanding the bullet maturity nature of much of Porterbrook's Senior
Debt, the group's liquidity position is good. In June
2018, the Issuer signed a new GBP500 million revolving bank
facility, which will expire in June 2023 if extension options are
not utilised.
RATIONALE FOR STABLE OUTLOOK
The outlook is stable, reflecting Moody's expectation of strong
cashflow generation supported by rolling stock lease rates that are,
at a minimum, in line with our base case forecast and that Porterbrook
will continue to employ conservative financial policies. The stable
outlook also reflects Moody's expectation of continued stable and
supportive regulation of the UK passenger rail sector.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Moody's could upgrade the ratings if 1) refinancing risk were reduced
and 2) the rating agency forecast a net debt to EBITDA ratio below 4.5x
on a sustained basis.
Downward rating pressure would result from 1) a Moody's expectation,
resulting from aggressive financial policies or poor financial performance,
that the net debt to EBITDA ratio would be higher than 6.5x on
a sustained basis or 2) a weakening in Moody's assumption of stable
and supportive regulation and oversight of the UK passenger rail sector.
The principal methodology used in these ratings was Generic Project Finance
published in April 2018. Please see the Rating Methodologies page
on www.moodys.com for a copy of this methodology.
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.
Tomas O'Loughlin
VP - Senior Credit Officer
Infrastructure 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
Kevin Maddick
Associate Managing Director
Infrastructure 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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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.
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