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Global Credit Research - 06 Oct 2010
Approximately C$265 Million of Debt Securities Affected.
New York, October 06, 2010 -- Moody's Investors Service placed the senior debentures of MI Developments
Inc. (MID) (Ba1) under review direction uncertain. Moody's
rating action reflects the uncertainty surrounding the effect on the debentures
from the bid MID received on October 1, 2010 for its shares,
the increased risk in MID's credit profile resulting from its stake in
former Magna Entertainment Corp. (MEC) racing and gaming properties,
and pressures in the automotive sector. MID's cash flows are derived
from long-term triple-net leases, substantially all
of them to MID's former parent, Magna International, Inc.
(Magna, unrated), from which MID was spun off in 2003,
as well as the racing and gaming business properties that now comprise
approximately two-thirds of MID's total revenues.
ST Acquisition Corp. (STAC), a corporation controlled by
members of the Stronach Family (the founders of Magna), announced
its intention to make an offer to acquire any or all of the Class A Subordinate
Voting Shares and Class B Shares of MI Developments Inc. not already
owned by it or its affiliates and associates at a price of US$13.00
per share in cash. STAC and its affiliated and associated entities
currently own an aggregate of 50,000 Class A Subordinate Voting
Shares and 383,414 Class B Shares of MID, which together represent
approximately 60% of the total voting power of MID's outstanding
shares. MID's board will organize a special committee to
evaluate this offer. In addition, on April 30, 2010,
MID took possession of a number of MEC's racecourses, gaming operations
and adjacent real estate properties in settlement of MEC's obligations
to MID. MID's credit profile will become more risky as it transforms
from managing traditional income-producing industrial properties
to racing and gaming properties, for which they have little expertise.
Moody's notes that MID's metrics have remained strong with fixed charge
coverage at 7.8x at 2Q10, leverage at 13.5%
at 2Q10, and Net debt/EBITDA at 1.85x at 2Q10. However,
the transfer of the gaming and racing assets, which now comprise
two-thirds of MID's total revenue, from MEC to MID,
will add greater volatility to MID's revenue stream.
Moody's review will focus on whether the racing and gaming properties
will be a cash drain on MID, and whether secured or other debt will
be assumed as a result of the STAC bid, that could be ahead or pari
passu with Moody's rated debentures. STAC stated that the $600
million would be financed through a combination of available cash-on-hand
and third party financing that is currently being arranged. It
is unknown whether some of this debt will be in MID's secured debt basket
that has a 15% limit under MID's debenture covenants. Moody's
will evaluate the status of the debentures in the takeout offer,
as well as the impact of the former MEC assets on MID's portfolio and
An upgrade is unlikely in the medium term. A return to a stable
outlook would be based upon no negative implications for MID's financial
metrics or portfolio resulting from the STAC bid, and clarity surrounding
the impact of the automotive business pressures on its Magna leases.
The rating could come under pressure should MID experience a substantive
weakening in credit metrics with fixed charge coverage
consistently trending below 3x or a significant deterioration in the automotive
industry that would force Magna to close a substantial number of its properties
leased to MID. In addition, significant income volatility
as a result of its ownership of racing and gaming properties could result
in a ratings downgrade.
The following ratings were placed under review direction uncertain:
MI Developments Inc. -- Unsecured debt at Ba1;
unsecured debt shelf at (P)Ba1.
Moody's last rating action with respect to MI Developments was on March
9, 2009 when Moody's placed MID's Ba1 rating on review for downgrade.
MI Developments Inc. [TSE: MIM.A, MIM.B;
NYSE: MIM], a real estate operating company headquartered
in Aurora, Ontario, Canada, is engaged in the ownership,
development, management, leasing and acquisition of industrial
and commercial real estate properties located in North America and Europe.
At June 30, 2010, MI Developments had US$2.0
billion in assets on a consolidated basis and US$1.5 billion
The principal methodology used in rating MI Developments was the Global
Rating Methodology for REITs and Other Commercial Property Firms published
in July. Other methodologies and factors that may have been considered
in the process of rating MI Developments can also be found on the Moody's
Merrie S. Frankel
VP - Senior Credit Officer
Commercial Real Estate Group
Moody's Investors Service
Commercial Real Estate Group
Moody's Investors Service
Moody's Investors Service
Moody's places MI Developments' ratings under review direction uncertain
250 Greenwich Street
New York, NY 10007
No Related Data.
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