Moody's changes FCOT outlook to negative on funding mix for FLT merger; confirms FCOT's issuer rating

MOODY'S changed its outlook on all Frasers Commercial Trust (FCOT) ratings to negative to reflect uncertainty related to its funding mix for the proposed acquisition with Frasers Logistics & Industrial Trust (FLT), it said on Tuesday.

The credit rating agency said consolidated credit metrics at the enlarged real estate investment trust (Reit) will remain unaffected, but the form of fund injection could have a material impact on FCOT's metrics.

In particular, if the proposed acquisition is funded by way of a shareholder loan at the FCOT level, Moody's expects the trust's leverage to increase to around 8.8 times by September 2020.

"This is significantly above the 8.0 times threshold set for FCOT's Baa2 rating," Moody's said.

Moody's negative outlook also considered that a prolonged outbreak of the coronavirus could impact FCOT's earnings and cash flows in line with the overall Reit sector.

Following a ratings review which was started in December, Moody's also confirmed FCOT's Baa2 issuer rating, FCOT Treasury's Baa2 backed senior unsecured debt ratings and the (P)Baa2 rating on its backed senior unsecured medium-term note programme.

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FCOT's ratings were confirmed after bond holders consented to proceed with the FLT merger, it said on Tuesday.

"This alleviates Moody's concerns with respect to FCOT's liquidity position because a merger without the consent from the bond holders is an event of default under its existing bond indenture," said Moody's. This could have led to acceleration of payment for the existing bonds, it added.

The ratings confirmation also reflects that "FCOT will continue to preserve its credit quality following the merger" and "its status as a privately owned sub-trust under FLT will not be (a) drag on its credit profile".

FCOT and FLT have called for trading halts on Wednesday morning as both are scheduled to hold separate extraordinary general meetings on Wednesday to vote on the merger proposal.

The proposal would see FLT acquiring all units of FCOT. The independent financial adviser to FCOT unitholders last month said the offer was fair and reasonable, and advised them to vote in favour of it.

Units of FCOT closed up S$0.03 or 1.9 per cent to S$1.62 and FLT units closed up S$0.03 or 2.5 per cent to S$1.23 on Tuesday.

Separately, the manager of Frasers Hospitality Trust (FHT) on Tuesday said the trust would "no longer engage Moody's to maintain a corporate credit rating on FHT".

Moody's may on its own accord continue to maintain a corporate credit rating on FHT, it added.