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Global Credit Research - 25 Oct 2010
Approximately $1.1 billion in securities affected.
New York, October 25, 2010 -- Moody's Investors Service said today that it has affirmed the senior unsecured
debt ratings (B3) of Forest City Enterprises, Inc.,
and revised the rating outlook to stable from negative. The rating
agency also affirmed its Caa2 convertible preferred stock rating.
The outlook revision reflects improvements in Forest City's performance
that allowed the issuer to meet Moody's previously published benchmarks
for the stable outlook: fixed charge coverage above 1.2x
and net debt/EBITDA closer to 14x. For the first half of 2010,
Forest City's fixed charge was 1.35x and its net debt/EBITDA
was 14.0x. Also, Forest City has maintained stable
liquidity, another prerequisite for the outlook change laid out
by Moody's. Forest City has refinanced its credit facility,
and has been addressing its mortgage debt maturities in due course.
The B3 senior unsecured rating also takes into account Forest City's
same property net operating income growth across property types in Q2'10,
the first such quarter in over two years. Also, Forest City
has significantly reduced its development exposure but still has $1.7
billion of projects underway on a pro-rata consolidated basis;
however construction financing is in place for all except $94 million.
Positively, the company addressed significant uncertainties associated
with its Atlantic Yards development, accomplished a master closing
on the project, completed a tax-exempt financing and brought
in a partner to reduce its stake in the Nets basketball team. Forest
City continues to benefit from a geographically diverse portfolio including
office, retail, and residential assets; also positively,
both its office and retail lease expirations are well-laddered.
Counterbalancing these strengths, Forest City's leverage remains
high at 65.9% debt plus preferred over gross assets,
and the company is primarily a secured borrower with 57.4%
secured debt as a percent of gross book assets. Net debt to EBITDA
is high at 14.0x at Q2'10 reflecting the company's
large development pipeline, however this metric has improved from
16.9x at Q1'09 when Moody's downgraded Forest City
with a negative outlook. Fixed charge coverage remains weak at
1.35x for H1'10, although it is an improvement from
1.18x for Q1'09.
Moody's stated that a rating upgrade would depend on Forest City
continuing to strengthen its credit profile while prudently managing its
development exposure. Positive rating movement would be predicated
on the fixed charge coverage closer to 1.4x and net debt/EBITDA
approaching 12x and at a minimum staying at those levels on a consistent
basis. In addition, sustained positive same property NOI
comparisons would be needed, along with stable liquidity.
Conversely, a downgrade would likely result from any deterioration
in the credit metrics, particularly fixed charge coverage to below
1.2x or net debt/EBITDA to above 15x, both on a sustained
basis. Material rise in the development pipeline or significant
challenges in leasing the newly built projects, as well as any liquidity
concerns would also put pressure on the ratings.
The following ratings were affirmed with a stable outlook:
Forest City Enterprises, Inc. -- B3 senior
Forest City Enterprises, Inc. -- Caa2 cumulative perpetual
convertible preferred stock rating
Moody's last rating action with respect to Forest City was on March 10,
2010, when Moody's assigned a Caa2 rating to Forest City Enterprises,
Inc.'s new cumulative perpetual convertible preferred stock issue
and affirmed the B3 senior unsecured rating. The rating outlook
was maintained on negative.
Forest City Enterprises, Inc. [NYSE: FCE-A]
is a national real estate company that is principally engaged in the ownership,
development, management and acquisition of commercial and residential
real estate and land throughout the United States. At July 31,
2010, its assets totaled $12.8 billion.
The principal methodology used in rating Forest City Enterprises,
Inc. was the Global Rating Methodology for REITs and Other Commercial
Property Firms, published in July 2010 and available on www.moodys.com
in the Rating Methodologies sub-directory under the Research and
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website.
Asst Vice President - Analyst
Commercial Real Estate Finance
Moody's Investors Service
Commercial Real Estate Finance
Moody's Investors Service
Moody's Investors Service
Moody's revises Forest City outlook to stable
250 Greenwich Street
New York, NY 10007
No Related Data.
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