Recent downgrades of Road Chef and Welcome Break, two landmark whole business securitization deals of roadside service complexes in the U.K., could put a damper on the market's appetite for these kinds of deals and bring closer scrutiny from ratings agencies, London-based bankers say. Last week, Fitch Ratings downgraded Road Chef's two single-A tranches to triple-B+, and its triple-B tranche to double-B. Welcome Break had four single-A tranches downgraded to triple-B+ and one triple-B tranche downgraded to double-B. Fitch noted that both companies are coming close to the danger zone in terms of being able to service their debt.
One banker says the ratings agencies should take a closer look at deals where companies are purchased by a financial buyer and then leveraged up through securitizations. "With Road Chef, the ratings agencies were a bit too willing to buy the stories the bankers told them," said a banker who worked on the deal. "The phrase the blind leading the blind springs to mind. It wasn't a process driven by people who knew about the [roadside service] business," he adds. Also in the case of Road Chef, the business was hard hit by the fuel crisis in 2000, when no one was driving and a scandal at one of the service areas where a prostitution ring catering to long-distance truck drivers was discovered. Still, some bankers are not too worried about the future of whole business deals in the U.K, with one of them dismissing the source of the downgrade by noting caustically: "It's Fitch."