OREANDA-NEWS. S&P Global Ratings today affirmed its 'BBB-' long-term issue rating on the ?136.5 million senior secured loan taken by U. K.-based limited-purpose entity PSBP Midlands Ltd. (ProjectCo). The outlook is stable.

The affirmation follows our review of the ProjectCo's recent performance. The issue rating reflects the lower of the construction - and operations-phase stand-alone credit profiles (SACPs). The operations phase SACP remains at 'bbb-' and reflects our opinion of the risk of the project's operations phase, which is driven by the project's high leverage and relatively weak annual debt-service coverage ratios (ADSCRs) that offset the project's simple service requirements and availability-based payment mechanism. Consequently, there is no change to the project's 'BBB-' issue credit rating.

We have revised our construction counterparty dependency assessment (CDA) to 'a-' from 'bbb+' and revised the project's construction phase SACP to 'a-' from 'bbb+' to reflect the additional available liquidity during construction. In addition to the ?18 million of facilities available in the form of letter of credit, performance bond and retention bond at the ProjectCo level, ProjectCo also has access to a ?3.1 million Credit Construction Enhancement Fund (CCEF) that is available at the Aggregator Vehicle level, which we were not aware of at financial close of this fourth batch of individual geographically grouped school projects (and hence it was not incorporated into our previous analysis). The CCEF provides additional liquidity to both the fourth and fifth batches during construction and is available to support the cost of construction contractor replacement, in the unlikely event it should be necessary to do so.

ProjectCo entered into an availability-based project agreement with the Secretary of State for Education to design, construct, and operate eight new secondary schools in the Midlands region of England. The project agreement is in accordance with general guidance from Private Finance 2, which limits facilities maintenance (FM) to hard FM and lifecycle services only. The project is the fourth of the five batches being financed by senior debt under an on-loan agreement with the Aggregator Vehicle (see "New Issue: Aggregator Vehicle PLC," published June 29, 2015, on RatingsDirect).

CONSTRUCTION PHASEWe assess the project's construction phase SACP at 'a-', based on the following key elements: The project uses commercially proven technology;The design is well-developed and presents limited risk;The building task is relatively straightforward and involves a standardized approach for all eight schools;The project employs a very experienced contractor under the terms of a construction contract that transfers a high to moderate amount of risk;Project management is strong; Although sources of funding are marginally negative, they are sufficient to fully fund the project under our downside scenario; andThe project is exposed to the construction contractor's creditworthiness. Overall, the construction is progressing well with very minor delays, which are not expected to impact the final handover dates for each phase. Overall, construction is progressing well with very minor delays, mainly due to the sequence of activities on site, which we do not expect will impact the final handover dates for each phase.

The timeline slippages are planned to be recovered through mitigating action plans put in place by the construction contractor, such as extending working hours, increasing resources, and rephrasing of planned works at various sites.

OPERATIONS PHASEWe assess the operations phase SACP at 'bbb-', owning to:Our expectation of strong operating performance, given the project's simple service requirements;The project's availability-based revenue stream that carries no market or resource risk;The experienced maintenance contractor and routine operation requirements;Neutral liquidity; andA minimum ADSCR of 1.08x under our base case and a robust performance under our downside scenario. COUNTERPARTY Although we regard the construction contractor's credit quality as weaker than the issue rating, ProjectCo has sufficient liquidity to replace the main contractor and a major subcontractor. We have therefore revised our construction CDA to 'a-'.

In our opinion, the project's routine maintenance requirements are relatively straightforward and there is a large pool of suitable alternative companies available if required. We conclude that ProjectCo would have the management and financial ability to replace the FM provider if needed, and therefore do not apply an operations and maintenance CDA.

The project has a weak link exposure to its financial counterparties, none of which constrain the issue credit rating.

The stable outlook reflects our forecast that construction will be delivered on time and within budget. We also expect operations to be managed effectively, reflecting the simple nature of the FM service tasks and the pass down of risks to an experienced FM service provider. We expect the project will maintain a minimum ADSCR no lower than 1.05x, combined with a robust downside scenario (minimum ADSCR greater than 1.00x including liquidity reserves).

We could raise our rating following a material improvement in the project's financial risk profile once the construction phase has completed, leading to forecast minimum ADSCRs under our base case of about 1.15x, or improved performance under our downside scenario.

We could lower the rating if construction became significantly delayed, if the likelihood of the construction contractor failing to perform and requiring replacement increased, or if we revised our expectations for performance under the base case or downside during the operations phase negatively. For example, we could lower the rating if the minimum ADSCR drops materially below 1.05x in our base-case and 1.00x in our downside scenarios. An increase in our long-term retail-price-index inflation forecast for the U. K., currently around 3%, could also negatively impact financial performance given that about 80% of the unitary payments are fixed compared with an inflation-exposed operating cost base. We could also lower the rating if we were to downgrade any financial counterparty to which the project's debt is weak-linked to below 'BBB-', and it was not replaced, in accordance with our criteria.

This news release contains forward-looking statements. Company has identified some of these forward-looking statements with words such as "anticipates," "believes," "expects," "estimates," "is likely," "predicts," "projects," "forecasts," "objectives," "may," "will," "should," "plans" and "intends" and the negative of these words or other comparable terminology. These forward-looking statements include statements relating to status of the separation process, the plan to pursue an IPO of up to 20 percent of the common stock of Company and the expected completion of the separation through the subsequent distribution of Company common stock, the anticipated timing of completion of the planned IPO and subsequent distribution of the remaining Company common stock, the plan to reorganize under a new public holding company to be called Company Global Holdings Inc. and Company's and Company's ability to pursue their long-term strategies. In addition, Company may from time to time make forward-looking statements in its annual report, quarterly reports and other filings with the SEC, news releases and other written and oral communications.