S&P: Following Announced Debt Issuance
The rating action reflects our view that the successful issuance of up to ?314 million senior secured debt at High Speed Rail Finance PLC (HSRF), comprising up to ?184 million amortizing fixed rate notes and up to ?130 million bullet repayment fixed rate notes, will weaken the project's financial profile due to the increase in total debt. HSRF is a sister company of HSRF1 and the new senior debt will rank pari passu with all existing senior secured debt at HSRF, HSRF1, and High Speed 1 Ltd. (HS1). We have assigned a preliminary 'A-' long-term issue rating to the new issuance (see "High Speed Rail Finance PLC Proposed Issuance Assigned Preliminary 'A-' Rating; Outlook Stable," published today on RatingsDirect).
We anticipate that the pricing of the new debt will take place in mid-October, ahead of drawdown in mid-December. If the issuance is successful and the terms are in line with our base-case assumptions, it will represent an 18% increase of total senior secured debt at HS1, HSRF, and HSRF1. This will lead to a weakening of the project's credit profile.
Under our base-case analysis, we project the minimum annual debt service coverage ratio (ADSCR) to fall to 1.44x from 1.46x and the average ADSCR to fall to 1.65x from 1.79x. Although the decline in the minimum ADSCR is limited under our base-case assumptions, the increased debt amount does reduce the average coverage ratio. In addition, the revised amortization of the debt is relatively back-ended for a project reliant on growth assumptions. The new debt issuance has shortened the concession tail to one year from two years, and includes a bullet repayment of up to ?130 million in December 2039. Consequently, the financial performance of the project, which has an inflation-linked revenue stream, deteriorates under long-term, sustained low inflation rates. We reflect this weakness by assigning a one-notch negative debt structure adjustment to the preliminary operations phase stand-alone credit profile (SACP).
For more details on the post-issuance structure, see "High Speed Rail Finance PLC," published today on RatingsDirect.
The CreditWatch placement reflects our expectation that we will lower the ratings on HSRF1's senior debt by one notch to 'A-' from 'A' on the issuance of the new senior debt at HSRF, if terms are in line with our base-case assumptions. We expect to resolve the CreditWatch by mid-December, when the issuance takes place.