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Rating Action:

Moody's assigns (P)Baa3 issuer rating to Immobiliare Grande Distribuzione SIIQ and to proposed senior unsecured notes; stable outlook

17 May 2016

London, 17 May 2016 -- Moody's Investors Service has today assigned Bologna-based real-estate company IGD SiiQ S.p.A. - Immobiliare Grande Distribuzione SIIQ (IGD) a provisional first-time long-term issuer rating of (P)Baa3. Concurrently, Moody's has assigned a provisional (P)Baa3 rating to the proposed senior unsecured notes to be issued by IGD. The outlook on the ratings is stable.

"Our assignment of a (P)Baa3 issuer rating to IGD primarily reflects its focus on stable and food anchored retail properties, its defensive lease maturity schedule and moderate leverage. The rating also assumes a successful completion of the planned refinancing," says Roberto Pozzi, a Moody's Vice President - Senior Credit Officer and lead analyst for IGD.

RATINGS RATIONALE

-- (P)Baa3 Issuer Rating

Today's rating action primarily reflects that IGD's operating performance has been resilient in recent years, in particular during 2011-12, when Italy went through financial turmoil. Moody's expects that Italy's improving consumer confidence will continue to feed through the retail property sector, thus supporting IGD's performance. However, the rating agency's forecast assumes no rent increases and flat occupancy rates over the next two years. The current rating also factors in moderate risk from development projects representing less than 10% of gross assets.

In addition, the provisional rating reflects expectations that (1) IGD's leverage (Moody's adjusted) will remain between 45%-50% in 2016-17; (2) its fixed charge cover will exceed 2.25x by the end of 2017; and (3) its debt maturity profile and unencumbered asset ratio will improve as a result of the envisaged refinancing.

The main constraint facing IGD's issuer rating is its high tenant concentration. The company's two main customers (and controlling shareholders) generate approximately a third of the company's rental income. IGD's historically weak fixed charge cover and geographic focus on Italy are a further rating constraint: given the Italian government's Baa2 stable rating, IGD's rating has limited upgrade potential at this stage.

The (P)Baa3 issuer rating is provisional pending IGD's successful completion of the envisaged refinancing plan in the near term. This would strengthen the company's liquidity, debt maturity profile and fixed charge cover, as well as reduce the proportion of its secured debt.

IGD's fixed charge cover is currently weak for the provisional rating assigned and the diversity of its funding sources is currently limited for an investment-grade issuer. The planned refinancing of secured loans with unsecured funds, alongside other operating initiatives, would be likely to adequately address this concern before the rating is finalised.

-- (P)Baa3 Senior Unsecured Notes

Today's assignment of the instrument rating to the proposed senior unsecured notes is in line with IGD's provisional long-term issuer rating of (P)Baa3. It also positively reflects Moody's expectation of improvement in IGD's unencumbered asset base. Moody's has typically assigned European real-estate issuers' senior unsecured ratings at the same level as the issuer rating, when of investment grade.

The notes will rank pari passu with all of IGD's other existing and future unsecured obligations and will benefit from a negative pledge and cross default clause, subject to conditions to be described in the bond documentation. The notes will also benefit from financial covenants that limit the group's loan-to-value, and will establish minimum interest cover levels and the minimum amount of unencumbered assets.

The size and timing of the issuance remain subject to market conditions. The rating is provisional upon a conclusive review of the final documentation, following which Moody's will endeavour to assign a definitive rating to the notes. A definitive rating may differ from the provisional rating.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook on IGD's ratings mainly reflects Moody's expectations of stable to slightly improving operating performance, as a result of overall stable rental income and unchanged occupancy rates throughout the next two years. In terms of key debt metrics, the stable outlook is based on expectations of fixed charge cover sustained between 2.25x-2.75x and leverage (gross debt to total assets) between 45%-50% over the next two years.

Factors that Could Lead to an Upgrade/Downgrade

Positive rating pressure is currently unlikely to develop given the constraint posed by Italy's current sovereign rating of Baa2 stable. Positive rating pressure could otherwise develop if we expected IGD's leverage to be sustainably below 45% and its fixed charge cover to exceed 2.75x. Any upgrade would also be conditional to maintaining sound liquidity.

Negative rating pressure could develop if we expected IGD's operating performance, debt metrics or liquidity to materially deteriorate. Quantitatively, expectations of leverage remaining above 50% and fixed charge cover remaining below 2x for a prolonged period could trigger a downgrade.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Global Rating Methodology for REITs and Other Commercial Property Firms published in July 2010. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

IGD SiiQ S.p.A. (IGD) is a retail property company based in Bologna, Italy, with gross assets of EUR2.1 billion generating net rental income of EUR121million in 2015. IGD's portfolio mainly includes 21 malls and retail parks, as well as 25 hypermarkets and supermarkets in Italy. The company also has a small presence in Romania, where it owns 14 shopping centres. The Italian malls represent 55% of the total portfolio value and generated 59% of its rental income, the Italian hypermarkets 30% and 33%, respectively, and the Romanian malls 8% and 7%.

The company is the result of the spin-off in 2001 of retail properties owned by the Italian cooperative retailer, Coop Adriatica (unrated, now Coop Alleanza 3.0) and later assets contribution in 2003 of Coop Tirreno (unrated). The two cooperatives currently own 40.92% and 12.03% of IGD's share capital and voting rights, respectively.

IGD's governance is in line with the criteria of the Self Regulatory Code of the Italian Stock Exchange. The company's Board of Directors appointed for 2015-18 includes 13 directors of which seven are independent in addition to the member appointed by Quantum Strategic Partners Ltd, which owns a 5.39% stake in IGD. In 2015, IGD's Board of Directors voted to voluntarily expand the scope of the procedures for related party transactions to include material transactions entered into with companies of the Unipol Group Gruppo Finanziario S.p.A. (Unipol Group, Ba2 stable). Coop Alleanza 3.0 is the largest shareholders of Unipol Group with a 9.62% direct stake and through its 34.16% stake in Finsoe S.p.A., which in turn owns 31.4% of Unipol Group.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

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

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.

Roberto Pozzi
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Patrick Mispagel
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns (P)Baa3 issuer rating to Immobiliare Grande Distribuzione SIIQ and to proposed senior unsecured notes; stable outlook
No Related Data.
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