Saizen – BT

Moody’s lowers Saizen; review for possible downgrade

Moody’s Investors Service has downgraded Saizen REIT’s corporate family rating to Ba3 from Ba1.

At the same time, the rating remains on review for further possible downgrade.

‘The downgrade reflects Saizen’s rising liquidity pressure with the presence of material refinancing risk in 4Q2009,’ says Kaven Tsang, a Moody’s AVP/Analyst.

‘While Saizen has suspended dividend payouts to preserve liquidity and is conducting a rights issue to address part of the refinancing needs, a significant portion of the maturing CMBS still does not have any committed funding arrangements. This material liquidity exposure will position Saizen more appropriately at the Ba3 rating level,’ he adds. Mr Tsang is also Moody’s lead analyst for the trust.

‘The slow process in refinancing and the narrow nature of its banking relationships would further increase Saizen’s exposure to market uncertainties, in view of the tightened nature of the global credit environment and the distressed state of the banking sector,’ he said.

‘Meanwhile, Saizen is exposed to the weakening in the operating environment and asset devaluation risk, as Japan’s recession deepens.

‘The latter could narrow the headroom for loan covenant compliance.’

Partly mitigating these concerns is the fact that its properties are in cities whose rental housing markets display fairly stable histories, even during the downturns of the late 1990s and early 2000s.

Saizen’s rating remains on review for possible downgrade and the review will focus on the company’s abilities to raise committed funding to address the unfunded portion of the maturing CMBS in 4Q2009 against the backdrop of turbulence in the financial markets.

Further downward rating pressure would evolve if Saizen’s liquidity position weakens, in the event that 1) Saizen fails to complete its rights issues, and 2) there is no material progress in securing committed funds — over the next 2 months — to refinance the unfunded portion of the maturing CMBS in 4Q 2009.

The last rating action was on 26 February 2009 when Saizen’s rating was downgraded to Ba1 and Moody’s continued its review for further possible downgrade.