BPO Downgraded to Pfd-3 [Stable] by DBRS

DBRS has announced that it:

has today downgraded the Issuer Rating and Senior Unsecured Debt of Brookfield Office Properties Inc. (Brookfield or the Company) to BBB from BBB (high), and the Cumulative Redeemable Preferred Shares, Class AAA to Pfd-3 from Pfd-3 (high).The trends on all ratings have been revised to Stable from Negative.

…Brookfield has released its F2012 year-end results, which included an update on the pending three million square foot (sq. ft.) vacancy at towers two and four of BPNY. Brookfield’s management indicated that it is nearing letters of intent on 1.5 million sq. ft. at BPNY, which accounts for approximately 50% of the remaining exposure to the Bank of America Merrill Lynch lease. While this leasing update is encouraging, DBRS expects operating income to remain relatively flat in 2013, and expects further pressure on operating income during the BPNY re-leasing transition period in 2014 and 2015.

Since DBRS does not expect Brookfield to take measures that would meaningfully reduce debt to offset softness in operating income, DBRS expects the EBITDA coverage ratio to remain below 2.00x during this time frame. As a result, DBRS believes Brookfield’s credit risk profile is no longer consistent with a BBB (high) rating.

DBRS notes that a prolonged weakness in operating performance (particularly due to further leasing delays at BPNY) and/or an increase in financial leverage that results in further deterioration of key credit metrics (i.e., EBITDA interest coverage below 1.70x) could result in a trend change to Negative. Although highly unlikely at this time, a change to Positive trend would require Brookfield to demonstrate meaningful improvement in operating income and significant deleveraging of its balance sheet.

DBRS’ prior “Trend Negative” outlook on BPO was reported on PrefBlog. It will be noted that BPO ratings have a knock-on effect on their parent, BAM.

Brookfield Office Properties is the proud issuer of:

OperatingRetractibles BPO.PR.H, BPO.PR.J, BPO.PR.K

One Response to “BPO Downgraded to Pfd-3 [Stable] by DBRS”

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