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Rating Action:

Moody's rates SL Green's shelf; places Ba1 rating on $250 million unsecured debt due 2018

09 Aug 2011

New York, August 09, 2011 -- Moody's Investors Service assigned (P)Ba1 ratings to the unsecured debt shelf of SL Green Realty Corp. ("SLG"), SL Green Operating Partnership L.P. ("SLGOP") and Reckson Operating Partnership L.P ("ROP"). This is the first time Moody's rated a shelf for SLG.

Moody's also placed a Ba1 rating to the $250 million unsecured debt issued by SL Green Realty Corp., SL Green Operating Partnership, L.P., and Reckson Operating Partnership, L.P. as co-obligors. The existing unsecured debt ratings for ROP bonds were affirmed at Ba1. The ratings outlook is stable.

RATINGS RATIONALE

The ratings reflect SLG's organizational structure, business strategy and evolving capital strategy. The ratings also reflect the REIT's sound operating performance with strong occupancy in its Manhattan portfolio which comprises 90% of annualized revenue. The REIT has good liquidity with $1.4 billion available in cash and line availability, a manageable debt maturity schedule over the near-term and a very low FFO payout ratio. In addition, SLG has demonstrated access to multiple capital markets.

SLG's on-balance sheet leverage metrics are moderate, but are materially higher when taking into account its proportionate share of joint venture debt. Effective leverage and net debt to EBITDA as of 2Q11 are 51% and 8.5x, respectively. Secured debt is very high, even for its rating category, at 37.4% of gross assets as of 2Q11 when accounting for its proportionate share of joint ventures. As a result, SLG has a low ratio of unencumbered assets as a percentage of gross assets.

Another key rating concern for SLG is its significant geographic concentration in Manhattan, tenant concentration and industry concentration. SLG's top five tenants account for 24.3% of its annualized base rent and the financial services sector represents 37% of annualized base rent at 2Q11, though these concentrations have been declining.

The shelf ratings assume that SLG, SLGOP, and ROP will continue to issue unsecured debt through the co-obligor structure. Should SLG issue unsecured debt securities individually (i.e. without the co-obligation of SLGOP and ROP), the ratings could be notched differently because the assets are held at SLGOP and ROP.

Moody's notes that ROP's 2014 and 2016 bonds rated Ba1 are not technically supported by SLG or SLGOP. In addition to their short tenure, Moody's believes the ratings are supported by ROP's unencumbered assets to unsecured debt of approximately 2.2X as of 1Q11 which includes ROP guarantees provided to SLG's 2017 exchangeable note and 2007 credit facility due 2012. Should this metric fall below 1.7X, the ratings on the 2014 and 2016 bonds could experience downward pressure. Moody's also notes that ROP's effective leverage is similar to SLG's when taking into account the guaranties that ROP provides to select SLG debt obligations. However, ROP has little secured debt (5% of gross assets) and a large pool of unencumbered assets (67% of gross assets or approximately $2.85 billion). Fixed charge coverage was strong (3.4X) at 1Q11. ROP's four largest properties are located in midtown Manhattan and account for approximately 72% of its annualized rent, and one property alone accounts for 29% of its annualized rent. This asset concentration is a key credit concern for the unsupported ROP bonds.

The stable outlook reflects Moody's expectation that the financial leverage of SL Green, which was reduced over the last few years, will remain stable as the REIT grows and office market fundamentals continue to improve.

Moody's indicated that an upgrade would be predicated upon a material increase in SLG's unencumbered assets (over 40% of gross assets) while maintaining strong unencumbered EBITDA to unsecured interest expense, a material reduction in overall secured debt (closer to 20% of gross assets), net debt to recurring EBITDA below 7.0X and fixed charge coverage over 2.4X on a sustained basis (all metrics inclusive of its proportionate share of joint ventures.) A rating downgrade could result should effective leverage (debt plus preferred as a percentage of gross assets) approach 55%, net debt to EBITDA increase closer to 9.0X, secured debt over 40% or fixed charge coverage fall below 1.7X(all metrics inclusive of SLG's proportionate share of joint ventures.) The ratings would also be pressured should SLG's unencumbered assets to gross assets decline materially from existing levels.

The following prospective ratings were assigned:

SL Green Realty Corp. -- senior secured shelf at (P)Baa3; senior unsecured shelf at (P)Ba1; subordinated shelf at (P)Ba2; junior subordinated shelf at (P)Ba2; preferred stock shelf at (P)Ba2

SL Green Operating Partnership, L.P. -- senior secured shelf at (P)Baa3; senior unsecured shelf at (P)Ba1; subordinated shelf at (P)Ba2; junior subordinated shelf at (P)Ba2

Reckson Operating Partnership, L.P. -- senior secured shelf at (P)Baa3; senior unsecured shelf at (P)Ba1; subordinated shelf at (P)Ba2; junior subordinated shelf at (P)Ba2

The following ratings were affirmed with a stable outlook:

SL Green Realty Corp. -- senior unsecured debt at Ba1

SL Green Operating Partnership, L.P. -- senior unsecured debt at Ba1

Reckson Operating Partnership, L.P. -- senior unsecured debt at Ba1

Moody's last rating action with respect to Reckson Operating Partnership, L.P. was on January 12, 2011 when upgraded the senior debt ratings to Ba1 from Ba2. The outlook was stable.

The principal methodology used in this rating was Rating Methodology for REITs and Other Commercial Property Firms published in July 2010.

SL Green Realty Corporation [NYSE: SLG] is a real estate investment trust primarily focused on owning and operating office buildings in Manhattan. As of June 30, 2011, the REIT owned interests in 57 office properties totaling 33.6 million square feet in the New York Metro area. At June 30, 2011, the REIT reported $12.6 billion in book assets and $6.3 billion in book equity.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

New York
Karen Nickerson
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Nick Levidy
MD - Structured Finance
Structured Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's rates SL Green's shelf; places Ba1 rating on $250 million unsecured debt due 2018
No Related Data.
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