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

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(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.