S&P Afms Crescent Real Estate Equities Rtgs; OffWatch.Business Editors NEW YORK--(BUSINESS WIRE)--Standard & Poor's April 1, 2002-- Standard & Poor's today affirmed its ratings on Crescent Real Estate Equities Co. (Crescent) and Crescent Real Estate Equities L.P. and removed them from CreditWatch, where they were placed on Jan. 23, 2002 (see list). The outlook remains negative. The former CreditWatch placement followed Crescent's announced termination of its agreement to purchase certain assets of Crescent Operating Inc. (COPI COPI Chevron Overseas Petroleum Inc. COPI Construction Output Price Index (UK) COPI Court-Ordered Protected Individual ), an unrated, publicly traded company publicly traded company A company whose shares of common stock are held by the public and are available for purchase by investors. The shares of publicly traded firms are bought and sold on the organized exchanges or in the over-the-counter market. formed by Crescent. As a result of this termination, it was uncertain if COPI, which is Crescent's largest lessee One who rents real property or Personal Property from another. A lessee of land is a tenant. Cross-references Landlord and Tenant. lessee n. the person renting property under a written lease from the owner (lessor). , would be able to continue as a going concern. Crescent has received COPI's lease interests in eight of Crescent's resort/hotel properties and the voting interests Voting interest in business and accounting is a percentage of voting stock owned. This notion is different from economic interest that refers to a percentage of all the equity issued, including preferred stock, warrants, and so on. in substantially all of Crescent's residential development corporations and related entities. Crescent will assist and provide funding to COPI for the implementation of a prepackaged bankruptcy Prepackaged Bankruptcy When acompany prepares a reorganization plan that is negotiated and voted on by creditors and shareholders before the company actually files for bankruptcy. of COPI. In addition, the prepackaged bankruptcy petition provides for the distribution of Crescent's common shares to COPI's stockholders in an amount that will be determined by reference to the claims, costs, and expenses of COPI's bankruptcy and related transactions. These costs are not expected to exceed $14 million. Crescent has also agreed to acquire, for $15.5 million, COPI's tenant interest in AmeriCold and spin it off to Crescent's shareholders. By controlling certain COPI assets, Crescent now has a more direct ownership structure, reflective of this management team's currently more focused strategy. Fort Worth, Texas-based Crescent, with book-value assets of just over $4 billion, now has three key business segments: office (72% of unleveraged funds from operations Funds From Operations (FFO) Used by real estate and other investment trusts to define the cash flow from trust operations; earnings with depreciation and amortization added back. ), resort/residential development (18%), and investment/non-core (10%). Despite weakness in Crescent's core Houston and Dallas office markets, the company's portfolio currently outperforms these markets in terms of occupancy and rental rate. Softness in Crescent's high-end Desert Mountain residential development and Sonoma luxury resort spa remains a modest credit concern. The company's financial profile generally improved in 2001, with the refinancing of $970 million of debt. However, coverage measures at year-end were weak, primarily due to COPI-related net asset write-downs. Leverage of 55% book value, or just under 50% market value, is expected to remain static during 2002, following a proposed $375 million senior unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. issuance, while the debt tenor will be lengthened length·en tr. & intr.v. length·ened, length·en·ing, length·ens To make or become longer. length  en·er n. . Proceeds from the company's proposed debt issuance are
expected to be used to repay $310 million of unsecured credit facility
balances and retire a $55 million preferred position in a partnership.
The company is expected to use the credit facility to retire the $150
million unsecured debt due to mature in September 2001 and the $64
million of maturing secured debt. The company's retiring debt is
likely to be refinanced at a higher rate; debt service, and fixed-charge
coverages fixed-charge coverageThe number of times that a firm's operating income exceeds its fixed payments. Fixed-charge coverage is a measure of a firm's ability to meet contractually fixed payments, with high coverage indicating significant flexibility for making are expected to drop to the 2 times area. In addition, while last fall's dividend cut did result in improved liquidity, it also drove the company's stock price lower. The company used asset sale proceeds and the liquidity from the dividend cut to pursue share repurchases Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. instead of direct debt reduction. OUTLOOK: NEGATIVE Crescent's financial profile is weak, with low coverage measures and a largely encumbered Encumbered A property owned by one party on which a second party reserves the right to make a valid claim, e.g., a bank's holding of a home mortgage encumbers property. portfolio that limits financial flexibility. The company's core office portfolio performance has been fairly stable but is highly concentrated in markets with current weak fundamentals. Sustained portfolio weakness, coupled with the potential for meaningful activity on the company's share repurchase program (which has over $400 million remaining), could stress financial measures further, prompting a one-notch downgrade. Alternatively, a return to stable would be driven by successful portfolio performance, despite the current market softness, and a demonstrated commitment by management to a more conservative financial profile with a tempered policy toward share repurchases. RATINGS AFFIRMED AND REMOVED FROM CREDITWATCH Issue To From Crescent Real Estate Equities Co. Corporate credit rating BB BB/Watch Neg $200 million 6 3/4% preferred stock B B/Watch Neg $1.5 billion mixed shelf prelim B/B+ prelim B/B+/Watch Neg Crescent Real Estate Equities L.P. Corporate credit rating BB BB/Watch Neg $150 million 6 5/8% senior unsecured notes due 2002 B+ B+/Watch Neg $250 million 7 1/8% senior unsecured notes due 2007 B+ B+/Watch Neg Copyright 2002, Standard & Poor's Ratings Services Ratings Service A company, such as Moody's or Standard & Poor's, that rates various debt and preferred stock issues for safety of payment of principal, interest, or dividends. |
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