A £171M loan to a funeral business operator with 850 properties across the UK has been restructured, because as the coronavirus pandemic recedes, the death rate might fall below long-term averages.

Dignity, which operates 800 funeral branches and 46 crematoria, has received consent from bondholders to amend the covenants on its whole business securitisation, which is debt secured against the income generated from the operation of its properties.

The company had not breached any covenants, but said it had agreed to more headroom with bondholders because its income could be hit in future.

“Higher death rates during the pandemic in 2020 and 2021 have contributed to Dignity’s securitisation’s relatively stable performance despite lower revenue per funeral and cremation — caused by the various pandemic-related government restrictions,” Fitch said in a note on the covenant amendments.

“The large number of excess deaths during this period means that some deaths have been brought forward. Depending on the development of the pandemic, and as the effect of excess death rates fades, lower death rates may occur in subsequent years.”

Fitch said that Dignity had lost market share in the years leading up to the pandemic because its prices had risen. It has introduced a new, low-cost funeral offering to try and regain market share, but cutting prices in a period of falling death rates might hit profitability, Fitch said.

The key covenant that has been waived is the requirement that Dignity’s earnings before interest, tax, depreciation and amortisation be 1.5 times higher than the amount it has to pay to service its debt. At the end of last year, it was twice as high, but Dignity said it had sought the waiver as a precaution.

Dignity said that it expects its full-year profit for 2021 to be about £54M, compared to £60M in 2020.