Could somebody post here the full article of the Moody's downgrade?
I have a feeling that the a recent downgrade mostly relates to unsecured bonds: less unencumbered assets are available to unsecured bondholders.
Also, the downgrade may have been caused by increase of NPLs in the Q1 report.
But I doubt that the bonds will start trading cheaper as a result of the downgrade. The downgrades of last three months only didn't make the bonds cheaper. To the contrary, the bonds were raising in price since the end of November 2008. Here are the possible reasons:
1. Those tho had to liquidate have already liquidated.
2. The credit have started to flow, so it's better to borrow than to sell bonds.
3. One billion of unsecured bonds have been converted to secured debt that have decreased the demand.
4. New billion secured bank loan in mid-March have increased the chances of survival, so the bondholders doesn't have to fear of default.
5. General optimism of Mr. Market.
I think the ratings agencies also didn't like the fact that Berkshire used its balance sheet to write billions in equity puts. It might be a good bet by the time the expire, but those puts are underwater now.
When your business plan is to buy your own debt and other securities at a discount, there is no need to hype your own securities. I've stated that several times. I'm no insider, but it is obvious that Sugarman has avoided hyping the stock and has presented himself as a little downcast during the last conference call. Quad explained how the tender offer would cram down the security available for the remaining unsecured bonds when the offer was first announced. It is all rather simple and it helps with the alchemy.
<Could somebody post here the full article of the Moody's downgrade?>
Here you go. Looks fairly boilerplate to me with no new info. Basically a repitition of what they said on Feb 27.
Moody's downgrades iStar to Caa1; outlook remains negative
Approximately $4.8 billion of securities affected.
New York, May 11, 2009 -- Moody's Investors Service downgraded the senior unsecured ratings of iStar Financial to Caa1 from B2. The rating outlook remains negative.
The rating action is based on the REIT's challenged liquidity and the limited visibility surrounding its ability to meet its short-term funding obligations. During its recent 1Q09 earnings call, the REIT indicated that it had $500 million in cash and $500 million bank line availability to fund its $1 billion debt maturities and $800 million funding commitments remaining in 2009. iStar has approximately $540 million of unsecured bonds maturing in 1Q10. Additional sources include loan repayments and asset sales; however, loan repayments are unpredictable given the continued lack of liquidity in the real estate debt markets and asset sales have relatively long lead times. In addition, iStar only retains 30% of any loan repayments from the Fremont portfolio until the $1 billion A-participation interest is repaid.
The negative outlook reflects the risks surrounding asset repayments, asset sales, and resolution of its non-performing assets in the face of continued challenges in the debt capital markets, especially for commercial real estate. Moody's expects iStar's non-performing assets to growth further and credit metrics to remain weak.
A rating downgrade would likely result if iStar's liquidity continues to be challenged, with a multi-notch downgrade possible should vagueness remain about the sources available to meet its 2009 obligations. In addition, any breach of bond or bank covenants would also result in a downgrade. Moody's stated that a return to a stable outlook would be predicated upon iStar's demonstrated ability to meet its funding needs over the next twelve months.
The following ratings were downgraded with a negative outlook:
iStar Financial Inc. -- Senior unsecured debt to Caa1 from B2; preferred stock to Caa3 from Caa1; senior debt shelf to (P)Caa1 from (P)B2; subordinated debt shelf to (P)Caa2 from (P)B3; preferred stock shelf to (P)Caa3 from (P)Caa1.
Moody's last rating action with respect to iStar Financial Inc. was on February 27, 2009 when Moody's downgraded the senior unsecured ratings to B2 from Ba3. The rating outlook was negative.
iStar Financial Inc. [NYSE: SFI] is a property finance company that elects REIT status. iStar provides structured mortgage, mezzanine and corporate net lease financing. iStar Financial is headquartered in New York City, and had assets of $14.8 billion and equity of $2.3 billion as of March 31, 2009.
iStar Financial's ratings were assigned by evaluating factors we believe are relevant to the credit profile of the issuer, such as i) the business risk and competitive position of the company versus others within its industry, ii) the capital structure and financial risk of the company, iii) the projected performance of the company over the near to intermediate term, and iv) management's track record and tolerance for risk. These attributes were compared against other issuers both within and outside of iStar's core industry and the company's ratings are believed to be comparable to those of other issuers of similar credit risk.
SFI has $800 million loan commitments in the remaining days of 2009, and a further $1 billion more in 2010 and beyond. I am guessing $600 million in 2010 and $400 million afterwards (when the projects become viable).
Hopefully these commitments are flexible.
Since cash and available credit are about enough to make debt repayments in 2009, SFI will have to depend on its loan repayments and asset resolutions (including sale of assets) to fund these commitments. Any excess cash flow can be used to repurchase its bonds.
I expect SFI to further repurchase its bonds, but not at a wholesale pace. Probably $100 or $150 million cash per quarter if SFI continues to be aggressive in loan sale/resolutions.
I feel sorry that the near term maturities, especially these maturing in early 2010, were not exchanged in mass amount.
Gosh, Moody's must have missed the $380MM gain on the tender.....
They must really, really be uncomfortable with uncertainty....
Even Buffett, who owns a good chunk of Moody's, couldn't come up with much good to say about ratings agencies during his rash of interviews around the annual meeting.....