MOODY'S CONFIRMS DEBT RATINGS OF TRIZECHAHN CORPORATION (SR.UNSEC. AT Ba2) AND CHANGES OUTLOOK FROM NEGATIVE TO STABLE
New York, 12/19/1996 -- Moody's Investors Service confirmed the Ba2 rating on TrizecHahn Corporation's exchangeable debt and the Ba3 rating on Trizec Finance Ltd.'s unsecured senior notes, and changed the company's rating outlook to stable from negative. This action is as a result of the merger of Horsham Corporation and Trizec Corporation Ltd., completed November 1, 1996.
The stable outlook reflects the benefits the merger will bring to the consolidated entity, while the rating captures the company's short history as an integrated real estate company, the cyclical nature of the industry, and an international-based growth strategy. Presently the company's international investment is less then $50 million on total assets of $4.9 billion. TrizecHahn's strategy is to become a fully integrated, growth-oriented real estate development and operating company by combining Horsham's financial resources and international contacts with Trizec's real estate portfolio.
As a result of the merger, TrizecHahn's balance sheet will become stronger. The consolidated entity had a debt/market capital ratio of 47% (includes the excess market value of Barrick investment), compared to Trizec's 70%. The company will also have greater borrowing capacity and will be in a position to seek more advantageous terms when refinancing maturing debt.
TrizecHahn is a Canadian-based real estate company which owns, develops and manages office buildings and regional retail centers in the United States, Canada and Central Europe. In addition, it has a 15.7% interest in Barrick Gold Corporation and a 46% interest in Clark USA, Inc., a U.S. oil refiner and marketer. As part of its focus on real estate operations, TrizecHahn intends to divest itself of Clark in the near future.
The Ba2 rating on the exchangeable debentures reflects that the interest payments on these securities will now rely more heavily on cash flow from operations then in the past, and it also factors in the structural subordination of the debentures to secured obligations of TrizecHahn's investments. The rating on the exchangeable debentures had been supported by the substantial unrealized value of TrizecHahn's Barrick stake. The market value of this interest, is $1.7 billion (the unencumbered portion valued at $842 million). These exchangeable debentures have no principal risk, since the obligation to pay principal can be satisfied by delivery of Barrick stock, which has been pledged and escrowed with a trustee. The payment of interest has been generated mostly from interest income from the $500 million of cash on hand. However, some of this cash now has been allocated to pursue the acquisition of office properties.
The Ba3 rating on the senior notes of Trizec Finance Ltd. reflect the guarantee of Trizec Corporation Ltd. and the fact that the notes are secured by all the shares of Trizec Properties Limited. These shares do not encompass the equity value of Barrick and Clark at the TrizecHahn Corp. level. However, $160 million of the $500 million in cash, has been used to date for acquisitions at the Trizec Properties Limited level enhancing its shares by creating an additional $160 million of equity. Going forward, the strategy is to use the extra cash at the holding level to purchase properties and to have the cash flow down, creating equity at the Trizec Properties level. The rating does not currently reflect this strategy , as there is no guarantee this type of financing of acquisitions will continue.
TrizecHahn Corporation, headquartered in Toronto, Canada, is one of the largest public real estate companies in North America with interests in 68 income-producing properties comprising 52 million square feet.
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