Fitch Ratings downgrades LMIRT to ‘C’ following exchange offer

CREDIT-ratings agency Fitch Ratings has downgraded the long-term Issuer Default Rating of Lippo Malls Indonesia Retail Trust (LMIRT) to “C” from “CC”, it said on Thursday (May 23).

It also downgraded the rating on LMIRT’s senior unsecured notes, due 2024 and 2026, to “C” from “CC”, with a recovery rating of “RR4”. 

A rating of C indicates an issuer is near default, and that a default or default-like process has begun; a CC rating indicates very-high levels of credit risk, with a default of some kind appearing probable.

A recovery rating of RR4 suggests average recovery prospects if a default were to take place. Such securities have characteristics consistent with securities historically recovering 31 to 50 per cent of their current principal and related interest.

The ratings cut follows LMIRT’s announcement that it would proceed with an exchange offer on its US$138.4 million unsecured notes due Jun 19, 2024, subject to certain conditions being satisfied.

Fitch Ratings said: “We believe the exchange offer constitutes a distressed debt exchange (DDE), as the transaction will lead to a material reduction in terms and, in our view, is being conducted to avoid a default.”

LMIRT announced on May 8 that it would commence an offer for holders of its 7.25 per cent senior notes due 2024 to exchange them for senior notes due 2026. Note holders who accept the exchange are to receive US$600 in cash and US$432 in principal amount of new notes for each US$1,000 in principal amount of old notes tendered.

Earlier this week, LMIRT said the exchange offer expired on May 20, with some 29.48 per cent of the total principal amount of the old notes outstanding validly tendered for exchange.

Fitch added it will downgrade LMIRT’s issuer default rating to “restricted default” (RD) on completion of the DDE, and that it would reassess the ratings with the post-restructuring capital structure.

Units of LMIRT closed unchanged at S$0.012 on Thursday.