Moody’s downgrades Fortress Reit’s credit rating deeper into junk
The listed property fund says the ratings agency’s view is too conservative
Moody’s Investors Service has downgraded commuter retail and industrial property owner Fortress Reit’s credit rating from Ba1 to Ba2, making it the latest property group to reach the second rung of junk status.
The downgrade comes after the agency downgraded the country’s credit rating to junk on March 28, meaning companies are also likely to attract junk ratings.
Moody’s said on Thursday that Fortress “continues to manage its liquidity in a way that it is overly reliant on the refinancing of existing debt as it comes due”. This would lead to refinancing risk in the next 12 to 18 months “in the context of likely pressure on rental income due to the lockdown in SA and dislocated credit markets”.
Moody’s said it assessed the company’s ability to meet its funding requirements under a conservative scenario without having market access to new funding over the next 12 to 18 months. “Under this scenario, Fortress had tight liquidity buffers to cover debt coming due,” it said.
Fortress has R3bn of debt maturing until June 2021, including R0.8bn worth of bonds. This compares with undrawn credit lines of R2bn, of which about R1bn will mature in November and December 2020, and unrestricted cash of about R280m.
Fortress, which is led by CEO Steven Brown, said Moody’s approach is “excessively conservative when assessing the company’s liquidity, despite it noting that Fortress has again successfully refinanced matured bank debt over the past 12 months”.
The company said it has “solid access to a diversified group of local banks”, adding that the negative outlook reflects the risks related to the refinancing of debt becoming due in the next 12 months as well as the anticipated wider negative credit implications of Covid-19.