🚀 AI-picked stocks soar in May. PRFT is +55%—in just 16 days! Don’t miss June’s top picks.Unlock full list

French REIT Klepierre faces 2009 covenant test

Published 01/09/2009, 10:09 AM
Updated 01/09/2009, 10:16 AM
BNPP
-
TTEF
-
LOIM
-

LONDON, Jan 9 (Reuters) - French real estate investment trust Klepierre risks a 2009 breach of loan terms tied to around half its 5.3 billion euro ($7.25 billion) total debt, according to JPMorgan credit analysts.

JPMorgan said the Paris-based company -- which owns 240 shopping centres across Europe -- could breach a 52 percent loan-to-value covenant this year as torrid economic conditions accelerate a relatively mild French property correction.

"With a relatively decent portfolio and BNP Paribas controlling over 50 percent of its bank lines, covenant renegotiation should be possible," JPMorgan said in a note.

"However, we are concerned that covenants are being tested so early in the cycle," the analysts added, warning that covenant renegotiation could also have negative repercussions for the firm's bondholders.

While British real estate prices have already fallen more than a third on a summer 2007 peak, the French property market correction is only just underway and experts expect values to slide at a much faster pace this year.

Klepierre, which is rated BBB+ by Standard&Poors, is also exposed to much weaker property markets of Spain, Italy and Portugal, which represent around one quarter of the value of its 12 billion euro portfolio as at June 30.

JPMorgan said Klepierre's aggressive expansion in recent years, including its part in the 2.7 billion euro takeover of Swedish property investor Steen and Strom last July, had ramped up the risks of a breach of its debt covenants.

"It concerns us that this situation could easily have been avoided by not making a large acquisition just as the property market looks to be going into a severe downturn," the note said, adding that it expected S&P to revise Klepierre's credit rating to 'negative' from 'stable' in the near future.

The analysts also suggested that company plans to sell assets to bring equity back on balance sheet would be largely offset by committed expenditure on Klepierre's 4 billion euro, five-year development pipeline. ($1=.7312 Euro) (Reporting by Sinead Cruise; editing by Simon Jessop) (See www.reutersrealestate.com for the global service for real estate professionals from Reuters)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.