Investing.com -- Fitch Ratings has placed Assura plc’s Long-Term Issuer Default Rating (IDR) and senior unsecured rating of ’A-’ on Rating Watch Negative (RWN). This also applies to Assura Financing Plc’s bonds, which are guaranteed by Assura and its operating subsidiaries.
The RWN is due to the potential increase in Assura’s leverage following the proposed acquisition by Kohlberg Kravis Roberts & Co. L.P. (KKR) and Stonepeak Partners LP. The acquisition is recommended by Assura’s board and is subject to shareholder approval. Fitch anticipates that it will downgrade Assura’s ratings if the bid from KKR and Stonepeak is accepted.
KKR and Stonepeak plan to invest in Assura through their respective infrastructure funds, focusing on long-term investment. The acquisition, valued at GBP1.6 billion, will be made through Sana Bidco Limited (Bidco). Each firm will commit a maximum of GBP727.2 million of equity. The acquisition will also be financed with interim debt facilities of GBP835 million and a GBP200 million interim revolving credit facility (RCF).
Fitch will consider the acquisition debt from Bidco in its assessment of Assura, assuming that this debt will be transferred to Assura over time. Assuming that only Assura’s GBP900 million of publicly listed bonds are retained and Assura’s existing and BidCo’s new GBP200 million RCFs are undrawn, Fitch expects Assura’s net debt/EBITDA to increase to 10.5x. This results in a loan-to-value (LTV) ratio of about 55%. Fitch believes that net debt/EBITDA above 10.5x would be more consistent with a sub-investment-grade rating.
KKR and Stonepeak have not yet stated if any of Assura’s existing debt will be prepaid. Fitch expects that the scheme document may provide more clarity on Assura’s funding profile after the acquisition.
Assura has GBP3.1 billion of predominantly UK purpose-built primary care assets. About 66% of Assura’s rent roll as at end-September 2024 is derived from GPs, who are reimbursed by the NHS for the rental payments, and from the NHS directly. The rest of the rent roll is from private healthcare providers (25%), pharmacies (6%) and others (3%).
Assura’s Fitch-rated peers include UK specialised supported housing (SSH) REITs Civitas Social Housing Limited (A-/Stable) and Social Housing REIT PLC (A-/Negative). For the SSH REITs and in Assura’s portfolio with NHS-backed rents, rents are agreed with state authorities when commissioning long-term assets. All three benefit from long-dated leases with tenants and upwards-only rent reviews.
Fitch’s assumptions for rating case of 8 August 2024 for the issuer include a GBP500 million acquisition of a private hospital portfolio to be funded with debt (GBP266 million), equity (GBP100 million) and cash. Disposals in line with the company’s guidance (GBP166 million in FY25 and GBP110 million in FY26) and development capex of GBP95 million during FY25-FY27.
Factors that could lead to negative rating action or downgrade include progress in the acquisition process, which would lead to net debt/EBITDA above 9.0x on a sustained basis, increased use of secured debt, deterioration of EBITDA net interest cover to below 2.0x, and LTV above 40% on a sustained basis. An upgrade is unlikely given the RWN.
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