Credit spreads on the two existing U.K. acute healthcare securitizations have widened about 30 basis points in recent weeks, partially in response to a Fitch Ratings report. The report predicted new government policies may lead to increased transparency and therefore lower prices consumers pay at private hospitals. These receivables support the securitizations, which are triple-B.
At the same time, triple-B spreads widened across the board in July in response to a Financial Service Authority's policy statement, 04/16, that sets new capital reserve requirements for insurance company holdings. Research analysts say the Fitch report and the FSA statement amounted to a double whammy for the hospital securitizations. But analysts said widening due to the Fitch report is unwarranted and presents investors an attractive entry point.
General Healthcare Group's GHG Finance notes, which are 80% backed by operating cash flows from acute-care hospitals, have widened by more than 30 basis points to 160bps over U.K. gilts in the past month, said Peng Sun, asset-backed analyst at HSBC in London. Yet Asim Qureshi, ABS analyst at Morgan Stanley, the lead manager on the deal, said 30bps is an unwarranted move wider. Operating cash flow "has increased substantially and nothing negative in particular has happened from a credit perspective," he said.
Spreads on British United Provident Association's U.K. Hospitals No. 1 £450 million offering, issued in July 2002 and 100% backed by acute care hospital operating cash flows, have also moved out 30bps. HSBC and RBS Financial Markets co-managed that sale. "Half the widening is due to investor over-reaction to the Fitch report; the rest is fall-out from the FSA regulation," said Qureshi.
Sarah Wall, associate director in structured finance at Fitch in London and author of the report, said there is a very low chance it will put the deals on negative watch. She noted debt service coverage at the triple-B level on both is two times or more and it could be three to five years before the full effects of any policy changes are known. She attributed the spread widening to investor jitters and pointed out that "there are so many headlines around healthcare in the U.K. at the moment, it's understandable that investors may feel concerned about the sector over the longer term."