Published March 4, 2009

Moody's lowers ratings for CCT, outlook negative

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MOODY'S Investors Service yesterday downgraded CapitaCommercial Trust's (CCT's) corporate family rating to Baa2 from Baa1 and senior unsecured ratings to Baa3 from Baa2. And the outlook for both ratings is negative.

'The downgrade reflects the company's strained credit metrics, particularly debt to EBITDA leverage and EBITDA/interest coverage, which are in excess of 10 times and around 2.5 times respectively,' said Moody's senior analyst Kathleen Lee.

'These metrics are anticipated to weaken further to the extent that they would not be consistent with a Baa1-rated Reit,' she said.

'Furthermore, Moody's expects it will be difficult for CCT to improve these metrics over the intermediate term, as its operations will likely continue to be impacted by the slowing economy and constrained capital markets, which could be further exacerbated by upcoming new office completions from 2009 onwards.'

Moody's noted that CCT has substantially addressed short-term refinancing requirements relating to its $580 million CMBS (commercial mortgage-backed securities) notes due March 16.

When completed, the refinancing will result in improved financial flexibility to the extent that CCT's encumbered assets will fall from 92 per cent to 59 per cent as a proportion of total assets.

Moody's said the Baa2 rating reflects CCT's leading position as Singapore's largest commercial real estate investment trust (Reit) with a portfolio of fully- owned high-quality assets supported by solid occupancy, high-quality tenants and a well-spread lease expiry profile. It also reflects CCT's relatively good access to bank markets, leveraging on the support of its established sponsor CapitaLand.

The outlook could return to stable if CCT is able to deleverage while successfully navigating the current economic downturn so that its EBITDA/interest coverage improves to three times and debt/EBITDA drops below seven times on a sustained basis, Moody's said.

Moody's previous rating action on CCT was taken on Dec 23 last year, when its Baa1 corporate family rating was placed on review for possible downgrade.