subject: Global Switch viewed favourably by Fitch Ratings [print this page] Global Switch viewed favourably by Fitch Ratings
Global Switch, one of the world's largest owners and operators of wholesale data centers, has been assigned a Long-term Issuer Default Rating (IDR) of BBB' and a senior unsecured rating of BBB' by Fitch Ratings. The Outlook on the Long-term IDR is Stable. The company's Short-term IDR has been assigned at F3'.
"Global Switch is a market leader in the provision of wholesale IT data centre solutions, which have become a lynchpin of modern commercial activity. This large portfolio of high specification data centers valued at GBP2.3bn in the last financial year is geographically diversified in Europe and Asia-Pacific," says Jean-Pierre Husband, a Director in Fitch's EMEA Industrials and Property team. "Global Switch has strong credit metrics, with little debt outstanding. Fitch therefore views Global Switch as having a financial structure that can absorb a possible further downturn in global economic activity."
With the possibility of a medium term bond issue in early 2011, Fitch expects that at the current rating level Global Switch will nevertheless maintain its financial metrics and, in particular, an EBIT NIC (net interest coverage) above 3x (on a pro forma basis assuming that any shareholder loan is replaced by debt at market rates) and leverage below 50 percent LTV. In addition, should Global Switch's policies in relation to dividends and loans to other group companies/holding companies change in favor of these companies, this would be a credit constraint.
Global Switch's financial metrics should remain strong post the anticipated bond issue. Unlike many property companies, Global Switch is strongly cash generative and Fitch does not consider that the current committed development program will result in a significant deterioration in credit metrics. Current LTV is low at 2 percent (23 percent including shareholder loans at FYE10), reflecting the group's past historical cash flow generation and equity funding. With the new bond issue in place leverage will remain low by Fitch European property company peers. In addition shareholder loans to Global Switch will remain subordinated to both bond and bank debt.
Global Switch's tenant profile is strong overall, but by the nature of the space there is a high concentration of TMT tenants and allied industries and this limits the rating upside. Lease terms are improving, with new leases now being signed for 10 years with lease indexation. The lease maturity profile is resilient, with only 38 percent of leases expiring in the next five years and average tenant churn is low.
While the buildings themselves are specialized and there is the possibility of some technology risk over the medium term, there are significant barriers to entry to the business and the long-term trends are favorable. Tenants will have invested large amounts of their own capex to fit out their space and will be reluctant to move sites given their considerable investment. Each data center space should thus exhibit predictable cashflows due to the often critical nature of the IT applications for tenants. Fitch believes that retention rates will remain high and this will be helped by staggered lease maturities.
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