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Fitch rates dignity finance plcs new class a and b notes a(exp)bbb(ex


(The following statement was released by the rating agency) LONDON, September 17 (Fitch) Fitch Ratings has assigned Dignity Finance plc's class A and B notes expected ratings of 'A(EXP)' and 'BBB(EXP)' as follows: GBP235m class A secured fixed-rate notes due 2034: assigned at 'A(EXP)'; Outlook Stable GBP347m class B secured fixed-rate notes due 2049: assigned at 'BBB(EXP)'; Outlook Stable This transaction comprises an exchange of all the outstanding notes in both classes (currently rated 'A+' and 'BBB+' respectively, with Stable Outlooks) replacing those with new debt tranches each featuring extended maturities, increased notional amounts combined with lower interest rates. An additional debt amount of approximately GBP85m (tap-issue) will be raised as well, evenly split between both classes. This re-gearing of the structure in combination with the new debt maturity profile and an amended language with regard to further note issue are the main reasons for the expected ratings being below the ratings of the existing debt tranches. Furthermore, some broadly credit-neutral document changes will be made to the structure. If 75% of the required quorum of noteholders of the existing notes approves this transaction, the existing class A notes will be fully repaid by the issuance of the new class A and B notes. The Outlook of both new classes of notes is Stable. The assignment of the final ratings is contingent on the receipt of final documents conforming to information already reviewed. Dignity is a whole business securitisation of funeral homes and crematoria in the UK, comprising 697 funeral homes and 39 crematoria. The Dignity group is the second-largest provider of funeral services in the UK and the largest provider of crematoria services. KEY RATING DRIVERS (KRDs) Industry Profile - Midrange Funeral services are considered a mature industry, albeit one subjected to demographic trends. Volume risk is limited as demand is rather stable and fairly predictable. Barriers to entry exist for new operators due to the importance of local referrals (for funeral services) or the difficulty to develop new greenfield facilities in the UK (for crematoria) in what is otherwise a rather fragmented market with a large number of small players. Sub-KRDs: Operating environment: Midrange; Barriers to entry: Midrange; Sustainability: Stronger Company Profile - Midrange Dignity has consistently delivered positive trading performance over the last 10 years, even during the most challenging times of the economic cycle. This has been achieved through above-inflation price increases, selected acquisitions and a reinforced presence in the highest-yielding segments, namely cremations. However, Dignity's intention to maintain its market share in less profitable pre-arranged funeral plans is expected to affect margins. Sub-KRDs: Financial performance: Stronger; Company operations: Midrange; Transparency: Stronger; Dependence on operator: Midrange; Asset quality: Midrange Debt Structure - Stronger (Class A)/Midrange (Class B) The new notes (refinancing the existing debt) will also be fixed-rate and fully amortising, benefitting from a strong UK WBS security package as well as from strong structural features such as a tranche liquidity facility and fairly high thresholds for both restricted payment conditions (RPC) and a financial debt service coverage ratio (DSCR) covenant. The class B notes' lower attribute is due to their contractual subordination, prolonged interest-only period (until the class A notes are fully redeemed) and late maturity in 2049. Sub-KRDs: Debt profile: Stronger (class A)/Midrange (class B); Security package: Stronger (class A)/Midrange (class B); Structural features: Stronger RATING SENSITIVITIES The ratings could be adversely affected if performance deteriorates significantly below Fitch's base case, notably due to a lack of ability to apply above-inflation price increases or due to an accelerated loss in market share (with a change in competitive landscape). A significant increase in the number of short leaseholds could also negatively affect the ratings, as this could increase the operating leverage of the transaction (with an increase in senior debt-like rental payments obligations). TRANSACTION SUMMARY Dignity has performed strongly since 2003, resulting in revenue and EBITDA annual compounded growth of 6.7% and 8.2%, respectively. This favourable performance has been achieved through organic growth, mainly due to above-inflation price increases, as well as acquisitions. Fitch's base case free cash flow (FCF) DSCRs for the class A and B notes (minimum of both the average and median DSCRs to legal final maturity) will increase significantly up to 4.1x (lease-adjusted 2.7x) and 2.2x (lease-adjusted 1.8x), respectively, mainly as a result of the longer debt maturities and correspondent reduction of the annual debt service. This base case conservatively assumes EBITDA growing at a compounded annual growth rate of 0.8% over the next 10 years. These solid DSCRs are also backed by an annuity-like debt profile which removes any point-in-time stresses. However, the long term to debt maturity for the class B notes of 35 years is viewed as credit-negative as more fundamental shifts in industry risks are conceivable over such a time horizon. Following the nominal re-gearing in conjunction with the tap-issue debt-to-EBITDA leverage will materially increase at closing to 2.5x and 6.1x for the class A and B notes, respectively from 1.8x and 3.9x. A pre-sale report will be published in the next few days. Contact: Primary Analyst Antonio Martin Associate Director +44 20 3530 1317 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Stefan Baatz Senior Director +44 20 3530 1134 Committee Chairperson Dan Robertson Managing Director +44 20 3530 1312 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.this site Additional information is available on this site Applicable criteria, Rating Criteria for Infrastructure and Project Finance (11 July 2012), and Rating Criteria for UK Whole Business Securitisations (22 July 2014), are available on this site Applicable Criteria and Related Research: Rating Criteria for UK Whole Business Securitisations - Effective from 9 August 2012 to 22 July 2014 here Rating Criteria for Infrastructure and Project Finance here Additional Disclosure Solicitation Status 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 WEBSITE '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. 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.

Lpc leveraged loan market left reeling by brexit


The European leveraged loan market has entered a period of uncertainty after Britain voted to leave the EU. On Friday loan investors and bankers digested the news of Brexit and tried to work out the knock-on effects on a market that was already suffering from low deal supply and high demand."Just extraordinary. There will be a period where people need to process it but they will adapt very quickly and start working through the consequences," a loan banker said."The bulk of the leveraged loan market is based in euros and is senior secured so it should be okay. Undoubtedly there will be equity volatility and valuations might alter, but it's unlikely to affect the bulk of the credit in the market, which should remain relatively stable."He said volatility will likely push yields down on higher-rated credits and lead yield-hungry investors to invest further down the credit spectrum."M&A could be impacted by uncertainty and valuations could be affected. Deal flow will be a concern I think. But the loan market as a whole should stay a haven of yield and stability and will stay open."In the secondary market, the spread between bids and offers widened, as traders showed a willingness to buy into market weakness, but investors were reluctant to sell, one loan investor said."There's stuff being marked down but no real volume to it," he said. UK biscuit company United Biscuits was bid at 98.75% and offered at 99.75% on Friday, according to Thomson Reuters LPC data. It was previously bid at 99.75% and offered at 100.5%.

Meanwhile, Swiss chemical company Ineos was also bid down at 95% versus 97% on Thursday, while it was offered at 98.5% versus 99% on Friday. UK gambling company Gala was down 2% to a bid of 98% from a bid at par, while it was offered at par versus 100.5. A second investor said he expected priced CLOs may step in with bids if prices drop a further three or four points."There's no volume right now if things do fall then people might step in but at the moment there are no buyers and sellers," he said. Bankers said the market had still not found its pricing level, but it was likely to widen in the aftermath of the vote amid wider volatility.

This will scupper opportunistic deals that had been poised to come to market if the referendum outcome had calmed financial markets and maintained high loan pricing in the secondary market. SLIM PICKINGS The pipeline for new buyout financings was already slim ahead of the referendum, with French real estate services firm Foncia's 1bn debt package and Bilfinger's building and facility services unit's 1.25bn all-senior secured financing preparing to launch in July."I don't think deals will rush to market but by the following week there may be some clarity on whether pricing hurdles have changed," a second loan banker said.

"Verisure and Verallia pricing at 450bp [earlier this month] will probably look like fantastic trades by the end of the year."However, he said the fundamentals of a demand-supply imbalance in the European leveraged loan market remain unchanged. Any impact will be tempered by the lack of deals in the market, a third banker said."What it does do potentially, it may reel in a few structures. If it doesn't push pricing up it will certainly put a floor on pricing," he said."Does it mean significantly lower volume? We already have low volume. People still need a return, we will be in a lower interest rate environment for longer, and leveraged loans provide that return."But he warned in the longer term there will be more pockets of volatility affecting financial markets including the loan market as Britain negotiates its exit from the European Union and the eurozone deals with the consequences."It's more of medium term and longer term question - what does the market look like as the smoke clears?"The European market will also be keeping a close eye on turmoil elsewhere including in the US, which is a larger more liquid market.