Fitch: Techem's Senior Loan Refinancing Neutral to Ratings
We also expect no changes to Techem's debt instrument ratings, including its senior secured notes and senior secured loans currently rated 'BB' as well as its subordinated notes issued by Techem Energy Metering Service GmbH & Co. KG, currently rated 'B'.
Our assessment of the A&E is supported by management and shareholders' firm commitment to maintain net debt/EBITDA-based leverage at or below 4.5x pre-measured at financial year-end on a sustained basis (leverage may be above 4.5x at quarter ends due to the cash cycle). Additional drawings under the increased senior secured bank facility agreement will be used predominantly for investment in sub-metering devices and smoke detectors. Such growth investment directly supports turnover and earnings.
Fitch's updated rating forecast, following the refinancing, shows an increase of funds from operations (FFO) adjusted gross leverage to between 5.5x and 6.0x in 2016 (previously 4.8x), before moderately de-leveraging thereafter. FFO interest cover is expected to remain around the 3.0x mark.
Both metrics remain in line with the rating sensitivity guidance for the group's 'BB-' Long-term IDR. Applicable ratio guidelines are FFO adjusted gross leverage below 6.0x; FFO interest coverage at or above 2.0x, and EBITDA margin at or above 30%.
The updated rating forecast assumes steady dividend payments of EUR80m-EUR90m per annum to Macquarie European Infrastructure Fund, provided such payments do not erode Techem's liquidity position and credit metrics.
The A&E terms foresee inter alia an increase in facility A by EUR80m to EUR555m and an additional capex facility of up to EUR150m, taking total committed undrawn capex facilities to up to EUR210m, in support of the enlarged investment plan. The new debt, together with the unchanged revolving credit facility of EUR50m, leaves total senior secured committed bank debt at up to EUR815m. Further, the A&E extends maturity to June 2020 and aligns the new terms with the senior secured notes, including net senior secured leverage of less than 5.0x, interest cover greater than 2.0x and a permitted dividend policy. We also note a relaxation of the debt prepayment mechanism from excess cash flow as well as expected lower cost of debt.