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Fitch puts Equity Residential's ratings on watch

NEW YORK (AP) -- Fitch Ratings has placed Equity Residential's ratings on review for possible downgrade after the company announced plans to buy part of apartment building operator Archstone Enterprise LP from the remains of Lehman Brothers.

Equity Residential, based in Chicago, said Monday that it is buying 60 percent of the assets and liabilities of Archstone from Lehman Brothers Holdings Inc.'s bankruptcy estate. Competitor AvalonBay Communities Inc. is buying the other 40 percent. The total deal is valued at $6.5 billion.

While the acquisition could ultimately strengthen Equity Residential's presence in some markets, the rating agency wants to make sure the company doesn't overload itself with debt to complete the deal.

Fitch said it is putting Equity's investment-grade "BBB+" issuer default rating on review for possible downgrade. The rating agency said it expects to make its decision sometime in 2013, after the acquisition is complete.

The outcome will depend on Equity Residential's ability to execute deleveraging transactions, such as equity offerings and asset sales. Fitch said it will also depend on its ability to increase its credit-line size and extend some Archstone-related mortgages to reduce near-term debt maturities and improve liquidity.

Equity's share increased $1.30, roughly 2 percent, to $55.73 by early afternoon.