Brookfield Office Properties has announced (although not yet on their website):
that BPY and other related entities of BPY have provided full and unconditional guarantees (the “Guarantees”) for all of the Company’s Class AAA Preference Shares (the “Preference Shares”) and all of the debt securities of the Company issued pursuant to its indenture dated December 8, 2009 (the “Debt Securities”).
At the time of entering into the Guarantees, the Company had C$2,363 million of Preference Shares outstanding and C$350 million principal amount of Debt Securities outstanding. As a result of the Guarantees, the Company has received an exemption from the requirements to file certain continuous disclosure documents with Canadian securities regulators, including financial statements, on the basis that holders of the Preference Shares and the Debt Securities will have access to certain continuous disclosure filings on BPY as the guarantor. Certain financial information of the Company will be included in the consolidated summary financial information in BPY’s consolidated annual financial statements and interim reports going forward. This will simplify the Company’s reporting requirements and reduce costs.
Each of the Guarantees will terminate (subject to any existing rights or claims at the time of such termination) upon, among other things, the date that no Preference Shares or Debt Securities, respectively, are outstanding. A copy of the Guarantees have been filed on SEDAR under the profile of the Company. Investors should refer to that filing for the complete terms of the Guarantees.
In response, DBRS has announced that it:
has today placed the ratings of Brookfield Office Properties Inc.’s (Brookfield or the Company) Senior Unsecured Notes and Cumulative Redeemable Preferred Shares, Class AAA (Preferred Shares) Under Review with Developing Implications. This rating action follows the announcement yesterday that Brookfield Property Partners (BPY) and other related entities of BPY will provide full and unconditional guarantees for all of Brookfield’s Senior Unsecured Notes ($350 million in principal amounts) and all of Brookfield’s Preferred Shares ($2.4 billion outstanding) at the time of entering into the guarantees.
DBRS will review the implications of the announcement and assess the credit risk profile of BPY, which is an indirect holding company of Brookfield, against the DBRS methodology, “Rating Holding Companies and Their Subsidiaries” (January 2016). DBRS will also review the guarantee documents for Brookfield’s Senior Unsecured Notes and Preferred Shares against the DBRS Criteria “Guarantees and Other Forms of Support” (February 2016). DBRS aims to resolve the Under Review status over the next several weeks.
Affected issues are: BPO.PR.A, BPO.PR.C, BPO.PR.J, BPO.PR.K, BPO.PR.N, BPO.PR.P, BPO.PR.R, BPO.PR.T, BPO.PR.W BPO.PR.X and BPO.PR.Y.
It is interesting to see another company reduce its reporting obligations by having its parent reporting issuer provide a guarantee. RONA recently did the same with a guarantee from Lowe’s.
I am not so sure this is a good thing. Pooled credit. In tough times, discourse can result.
You’re quite right. One of Brookfield Asset Management’s strengths has been that so much of their debt is project-specific, so they could walk away from a bad building without it affecting the rest of their debt mountain – much! This starts to lean in the other direction.