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Rating Action:

Moody's assigns Ba1 ratings to Globe Trade Centre S.A. and to the €500 million backed senior unsecured notes to be issued by GTC Aurora Luxembourg S.A. Outlook is positive

08 Jun 2021

Frankfurt am Main, June 08, 2021 -- Moody's Investors Service (Moody's) has today assigned a Ba1 corporate family rating (CFR), to Globe Trade Centre S.A. (GTC). Subsequently, it has assigned a Ba1 rating to its new proposed guaranteed €500 million senior unsecured notes, to be issued by GTC Aurora Luxembourg S.A. and to be guaranteed by GTC. The outlook on the ratings for both entities is positive.

"GTC's business risk profile is solid. While its scale is more moderate compared to higher rated peers, we still believe that the group's credit profile can become commensurate with the requirements of an investment grade rating, supported by a conservative financial policy that targets to preserve a long-term capital structure at or below a 40% LTV. The company ranks among the main office and retail real estate companies within CEE and owns a well-diversified property portfolio, leased to a high-credit quality tenant base", says Ana Luz Silva, a Vice President-Senior Analyst at Moody's and lead Analyst for GTC.

RATINGS RATIONALE

The Ba1 corporate family rating is supported by: (1) GTC solid market position across its main jurisdictions; (2) its well-located and good-quality property portfolio with a high share of energy certified assets at 84%; (3) stable cash flows generated from a high-credit quality tenant base; (4) resilient operating environment supported by a robust economic backdrop across its main countries of operations and enhanced by strong medium to long term fundamentals and (5) good liquidity further improving with the planned bond and equity issuance, as those will considerably expand GTC's unencumbered asset base. We also view positively GTC's long-term oriented main shareholder Optima (holding a 66% stake) who fully supports management's action plan, including the planned equity raise in H2 2021, for enhancing its capital structure by reducing leverage towards 40% in line with its publicly communicated financial policy.

On the other hand, the rating is challenged by: (1) a Moody's adjusted leverage above 45% and a 2021e Moody's adjusted Net debt to EBITDA above 10x, both expected though to notably decline over the next 12 to 18 months in line with an improving occupancy rate and company's commitment towards its financial policy; (2) the pandemic-driven economic uncertainty that is holding back occupier and investment dynamics in the geographies where GTC operates; (3) company's footprint in less liquid investment markets, with higher downside risks to investor appetite, property valuations and access to capital than those of core European countries; (4) future growth via development or acquisitions which could increase business risk, balanced by company's good track record next to solid level of pre-letting ratios and (5) still limited unencumbered asset base which will notably expand once the company progresses on the planned shift towards unsecured funding.

RATIONALE FOR POSITIVE OUTLOOK

The positive outlook reflects our expectations that GTC credit ratios can strengthen towards levels similar to those of investment-grade rated peers over the next quarters on the back of the company's strong commitment to reducing its effective leverage in terms of Moody's adjusted debt/assets towards 40%, in line with GTC's financial policy, which is fully endorsed by its anchor shareholder.

The positive outlook also reflects potential for a higher rating if GTC were to show an improving trend in its occupancy rates, in particular in the office segment. A reduction in vacancies coupled with positive rent release spreads should also support earnings-based metrics, such as its Moody's adjusted net debt to EBITDA to fall to levels at or below 10x. The latter point regarding a recovering operating performance is important as it would provide additional comfort on the robustness of GTC's property portfolio against fundamental trends affecting the office and retail segment as well as temporary weakness from potential supply-and-demand imbalances.

We expect that the robust economic backdrop of GTC's main jurisdictions Poland (A2 stable), Hungary (Baa3 positive); Bulgaria (Baa1 stable) and Romania (Baa3 negative) provides for a favourable operating environment over the next 12 to 18 months.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Strong track record of successfully growing its asset base while maintaining a solid operating performance characterized by growing occupancy rate and like-for-like net rental income across its portfolio, in a favourable operating environment

- Financial leverage declining towards 40% or below as measured by Moody's-adjusted gross debt/assets and in line with the current conservative company's financial policy, together with a declining Moody's-adjusted Net debt/EBITDA to levels at or below 10x

- Moody's adjusted fixed-charge coverage ratio around 3.0x on a sustained basis

- Maintenance of a robust unencumbered assets ratio well above 50%, comprised by a high-quality asset pool in strong jurisdictions, providing a good coverage to unsecured creditors

- Maintaining strong liquidity and a long-dated well-staggered debt maturity profile with a track record in accessing to all forms of debt and equity capital

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Deterioration in the operating performance, dropping occupancy rate, declining like-for-like net rental income, shortening WALT, or if property market fundamentals weaken sharply

- Moody's-adjusted leverage sustained above 45%, together with an increasing Moody's-adjusted Net debt/EBITDA vs. 2020 level

- Moody's adjusted fixed-charge coverage ratio below 2.0x on a sustained basis

- Increase of its development pipeline towards 10% with no meaningful pre-letting ratios

- Weakening of liquidity

STRUCTURAL CONSIDERATIONS

The planned €500 million guaranteed senior unsecured notes will rank pari passu with all other unsecured obligations of the issuer and will benefit from: (i) cross-acceleration provision (ii) a change of control provision and (iii) covenants including a maximum Consolidated Leverage Ratio of 60% (incurrence), a maximum Secured Leverage Ratio of 40% (maintenance), a minimum Consolidated Coverage Ratio of 1.5x (maintenance) and a minimum Unencumbered Consolidated Total Assets to Unsecured Indebtedness of 1.25x (maintenance).

The assigned Ba1 CFR is in line with the senior unsecured rating considering that after this issuance GTC will shift towards a predominantly unsecured funding structure over the next 12 to 18 months. We understand that the targeted senior unsecured notes will be issued by GTC Aurora Luxembourg S.A. and guaranteed by GTC.

Pro forma of the transaction, GTC unsecured debt is expected to increase to 56% of total debt by year-end 2021. Current encumbered assets of c. €1.9bn would be reduced to c. €1.0bn pro forma for bond transaction. Unencumbered properties will offer around 1.8x coverage of unsecured debt obligations.

By year-end bondholders will likely be subordinated to remaining secured bank debt of around €550 million. The company aims to reduce the level of structural subordination of the bonds over time, supported by planned unsecure issuances over the next 12 to 24 months. After issuance senior unsecured creditors will be sufficiently covered with a ratio of unencumbered assets of around 66%-68% by year-end 2021.

LIQUIDITY

GTC's liquidity is expected to be good. The group's internal cash sources are expected to comprise cash on balance sheet above €250 million by year-end 2021; Moody's-adjusted funds from operations will be between €65 million and €75 million over the next 12 to 18 months. These funds will comfortably cover all expected cash needs in the next 12 to 18 months.

Company's financing strategy is based on diversified sources. As per end of March 2021 the average debt maturity was higher than four years and with 77% of debt cost being hedged.

Our liquidity assessment also considers that the company benefits from broad pool of banking partners and a strong relationship with them. The targeted senior unsecured bond issuance will support a sustained funding diversification towards predominantly unsecured borrowings over the next 12 to 18 months.

ESG CONSIDERATIONS

GTC is a public listed company. Its shares have been traded in Warsaw stock exchange since 2004. The company's largest shareholder is Optima Investment Ltd (Optima), which was established in 2015 with the objective to manage the funds of the Pallas Athene Foundation. The foundation finances educational, scientific and cultural activities; which it does via the rentability obtained from its real estate investments in Hungary and the CEE region.

We regard the long-term orientation of its main shareholder as credit enhancing, considering that Optima fully endorses GTC's publicly communicated financial policy and commitment to preserve a long-term capital structure at or below 40% LTV.

Company's main shareholder also supports management's action plan, including planned equity raise in H2 2021 and dividend suspension in 2020 and 2021.

The company's governance structure includes Board of Directors with 8 members, 4 of which independent. Company benefits from an experienced management team.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1095505. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

CORPORATE PROFILE

GTC is a well-known real estate investor and developer in Central Eastern Europe (CEE). The group was established in 1994 and has real estate operations across Poland, Budapest, Bucharest, Belgrade, Zagreb and Sofia. The company's gross asset value (GAV) amounts to around €2.1 billion (out which €1.9 billion income-generating properties). Annual rent-in place is around €139 million.

The company is publicly listed. Its shares have been traded in the Warsaw stock exchange since 2004. GTC's market capitalization amounted to around €745 million as of 07 June 2021. GTC's main shareholder is Optima (66% shareholding), an investment fund of Pallas Athene Foundation.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Ana Luz Silva Robles
Vice President - Senior Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Anke Rindermann
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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