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Related Articles 11/3/2009 Saizen REIT defaults on CMBS loan 10/26/2009 Saizen REIT sells property to pay off loan

Moody's on Nov. 3 affirmed the Caa1 corporate family rating of Saizen Real Estate Investment Trust. The rating outlook is negative.

Moody's said the affirmation reflects its view that the failure of Saizen special purpose vehicle YK Shintoku to pay a ¥7.3 billion CMBS obligation upon the Nov. 2 maturity will have a limited impact on Saizen's rating.

"Saizen operates its properties through nine SPVs," said Moody's assistant vice president and analyst Kaven Tsang in a statement. "Each SPV is ring-fenced, and there are no cross-default clauses in YK Shintoku's CMBS obligation. Therefore, the default will not have a direct impact on the other SPVs' operations."

Tsang noted, however, that Saizen will lose approximately 21.6% of the assets in its portfolio and lose 22.4% of its rental income due to the default. This will weaken the company's operating position and cash flow, the impact of which has been factored into the existing Caa1 rating, he said.

The rating agency said the negative outlook reflects the company's "weak liquidity," characterized by the risk of a potential covenant breach due to the risk of asset devaluation.

Saizen will have to strengthen its banking relationships for the outlook to revert to stable, according to Moody's. Stabilization of Japan's property market, which would prevent further declines in property valuations and in turn mitigate the risk of covenant breaches, would also support the company's rating outlook, the rating agency added.

As of Nov. 2, ¥1 was equivalent to 1.11 U.S. cents.