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Rating Action:

Moody's downgrades Washington Prime to Caa1; ratings under review for downgrade

19 Mar 2020

New York, March 19, 2020 -- Moody's Investors Service, ("Moody's") has downgraded all of Washington Prime Group Inc. (WPG)'s ratings, including the ratings of its operating subsidiary, Washington Prime Group, L.P.'s senior unsecured debt to Caa1 from B1. At the same time, Moody's placed the ratings, except the speculative grade liquidity rating, under review for downgrade. The speculative grade liquidity rating was downgraded to SGL-4 from SGL-3.

The rating downgrade reflects our expectation of continued weak performance from WPG's mall portfolio amidst an increasingly challenging operating environment. The REIT's high leverage and weak liquidity position, including the potential for it to breach its debt covenants, are additional credit considerations.

Moody's review will consider the cash flow risk associated with the REIT's mall portfolio, including its impact on leverage and prospects for remaining in compliance with its debt covenants.

The following ratings were downgraded:

Issuer: Washington Prime Group, L.P.

- Senior unsecured debt to Caa1 from B1; Placed under Review for Downgrade

- Senior unsecured shelf to (P)Caa1 from (P)B1; Placed under Review for Downgrade

- Corporate family rating to Caa1 from B1; Placed under Review for Downgrade

- Speculative grade liquidity rating to SGL-4 from SGL-3

Issuer: Washington Prime Group Inc.

- Preferred stock to Caa3 from B3; Placed under Review for Downgrade

- Preferred stock shelf to (P)Caa3 from (P)B3; Placed under Review for Downgrade

- Preferred stock shelf non-cumulative to (P)Caa3 from (P)B3; Placed under Review for Downgrade

Outlook Actions:

Issuers: Washington Prime Group, L.P.; Washington Prime Group Inc.

- Outlooks changed to Rating Under Review from negative

RATINGS RATIONALE

WPG's Comp NOI for Tier 1 malls and open air properties declined 5.2% for 2019, with an 8.0% decline for the mall portfolio (66% of 2019 Comp NOI) partially offset by 2.1% growth from its open air properties (27%). WPG's mall portfolio has been struggling in recent years, as traditional retailers contend with competition from e-commerce and changing consumer preferences.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented and we expect will lead to more retail tenant bankruptcies and store closures given their sensitivity to consumer demand and sentiment. Mall landlords with lower productivity assets like WPG are expected to experience a disproportionate impact from these pressures. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

The REIT's leverage remains high, with Net Debt/EBITDA of 8.9x for 2019 (including pro rata JVs and treating 75% of preferred as debt) and will be difficult to reduce given expected operating conditions.

WPG's SGL-4 rating reflects its weak liquidity profile as we consider the risks to operating cash flow which could cause it to breach the debt covenant in its bond indenture and credit facility. WPG's leverage, as defined in its bond covenant, was 56.9% at 4Q19 versus the 60% threshold. We estimate a 5% decline in NOI would cause a covenant breach. Moreover, the REIT's line is currently about 70% drawn, so it will need to raise more external capital and strengthen its financial position as it looks to refinance its revolver that has an original maturity date in December 2021 (plus two six-month extension options) and $350 million term loan due in December 2022.

Positively, we note that WPG has reduced its common dividend, which will provide incremental cash flow to help fund its strategically important development pipeline (in conjunction with modest outparcel sales). WPG also has a large unencumbered asset pool, which has many good quality assets including a large percentage of open air centers. This portfolio provides some financial flexibility, with estimated asset value providing good coverage of unsecured debt.

Given the review for downgrade, an upgrade is unlikely in the foreseeable future until Moody's sees signs of material growth in mall cash flows and stronger liquidity as evidenced by less reliance on the credit line for funding.

WPG's ratings would likely be downgraded should it experience further NOI declines that bring it closer to breaching a debt covenant.

Washington Prime Group Inc. [NYSE: WPG] is a retail REIT that owns a mix of enclosed malls and open air community centers across the United States. Gross assets totaled $7.6 billion including pro rata share of JVs as of 4Q19.

The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms published in September 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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.

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.

Lori Marks
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Philip Kibel
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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