Fitch downgrades LMIRT to ‘C’ from ‘CCC’ on distressed debt exchange
The cut in ratings follows LMIRT’s announcement that it will proceed with a tender offer, subject to the fulfilment of certain conditions
FITCH Ratings has downgraded the long-term issuer default rating of Lippo Malls Indonesia Retail Trust (LMIRT) to “C” from “CCC”.
The see-saw in ratings comes after the credit ratings agency upgraded LMIRT’s rating back to “CCC” in June after downgrading it to “C” in May.
The cut in ratings follows LMIRT’s announcement that it will proceed with a tender offer, subject to the fulfilment of certain conditions.
On July 12, LMIRT’s manager said it received US$125.9 million in valid tenders on its 7.5 per cent senior notes due 2026, representing 84.78 per cent of the total principal amount outstanding of the notes. LMIRT also received valid consent to remove material covenants from no less than a majority in the aggregate principal amount of the notes due 2026.
“We believe the tender offer constitutes a distressed debt exchange (DDE), as the transaction will lead to a material reduction in terms and, in our view, it allows the issuer to avoid an eventual probable default,” Fitch said in a statement.
A “C” rating indicates an issuer is near default, and that a default or default-like process has begun. This is unlike a “CCC” rating, which indicates substantial risk and a very low margin for safety, with default as a real possibility.
Fitch said it will downgrade LMIRT’s issuer default rating to “restricted default” when the DDE is completed and reassess its ratings in accordance with the post-restructuring capital structure.
The credit ratings agency has also lowered its rating on LMIRT’s senior unsecured notes due 2026 to “C” from “CCC” and revised the recovery rating to “RR6” from “RR4”.
A recovery rating of RR6 implies poor recovery prospects if a default occurs. Such securities have characteristics consistent with securities historically recovering zero to 10 per cent of their current principal and related interest.
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