PrefBlog

Standard & Poor’s has announced:

• Brookfield Property Partners L.P. (BPY) announced a proposal to acquire Brookfield Office Properties (BPO) by way of tender offer for any or all of the common shares it does not presently own.
• We placed our ratings for BPO on CreditWatch with developing implications, including our ‘BBB-‘ corporate credit, ‘BB+’ unsecured debt, and ‘BB’ preferred stock ratings. The developing CreditWatch listing means the ratings could be raised, lowered, or affirmed.
• We do not currently rate BPY, a large, diversified, recently listed and globally focused real estate company, which is majority owned and externally managed by Brookfield Asset Management (BAM).
• To resolve the CreditWatch, we will seek to meet with BPY management in the coming month to ascertain the impact, if any, of the proposed acquisition on BPO’s credit profile.

…
BPY’s proposal has stated that BPO’s rated unsecured debt securities would remain in place, but that some convertible preferred shares could be exchanged for equivalent shares of a BPY subsidiary. It is not clear to us whether the debt securities would be guaranteed by BPY and the extent to which BPO’s current operating and financial strategies as well as its legal structure could change once absorbed into the BPY platform.

We currently see downside risk to ratings as somewhat less likely, given the potential benefits of BPY’s larger, more diverse platform. However, the expected growth and financing strategies for BPY’s other operating platforms is at this time unknown to us. We will seek to meet with management of BPY in the coming month to gain clarity on these issues, so as to ascertain the impact, if any, of the proposed acquisition on BPO’s credit profile.

The bid was previously reported on PrefBlog.

BPO was downgraded to P-3 by S&P in July, 2013. I remain concerned about the knock-on effects on BAM’s credit rating if the flow of dividends from the subsidiaries to the parent should be considered less reliable as a result of increased leverage at the subsidiary level.

The ultimate parent, Brookfield Asset Management, has the following preferred shares outstanding:
FixedResets BAM.PF.A, BAM.PF.B, BAM.PR.P, BAM.PR.R, BAM.PR.T, BAM.PR.X, BAM.PR.Z
Floaters BAM.PR.B, BAM.PR.C, BAM.PR.K
RatchetRate BAM.PR.E
FixedFloater BAM.PR.G
OperatingRetractible BAM.PR.J
Straight Perpetual BAM.PR.M, BAM.PR.N, BAM.PF.C

BPO has the following preferred share issues outstanding:
OperatingRetractible BPO.PR.H, BPO.PR.J, BPO.PR.K,
FixedReset BPO.PR.L, BPO.PR.N, BPO.PR.P, BPO.PR.R, BPO.PR.T,
Floaters BPO.PR.W, BPO.PR.X, BPO.PR.Y

In the event of a successful bid, the BPO Operating Retractibles might be the object of an exchange offer.

This entry was posted on Friday, October 4th, 2013 at 7:34 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.