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LONDON, February 25 (Fitch) Fitch Ratings has today downgraded property company Atrium European Real Estate Ltd’s (Atrium) senior unsecured rating and Long-term Issuer Default Rating (IDR) to ‘BB-‘ (BB minus) from ‘BB+’ respectively. The Rating Outlook on the Long-term IDR is Negative. The Short-term IDR has been affirmed at ‘B’.

The downgrade reflects Fitch’s concern that the deteriorating economic  environment in Central and Eastern Europe (CEE) will lead to greater negative
pressure on Atrium’s tenant portfolio and ultimately its rental income. Fitch believes there is now an increased risk of tenant defaults and a greater need to
offer lease incentives to existing tenants because of worsening economic conditions. This concern is exacerbated by the fact that a majority of Atrium’s
tenants earn revenue in local currencies but pay rent in euros or US dollars, which has become increasingly difficult as the depreciation of CEE currencies
has accelerated in recent months. In addition, there has been a significant curtailment of the development programme as a result of projects becoming
economically unviable. This means that rental income from the development portfolio is now less than Fitch initially anticipated. The agency believes that
Atrium’s Fitch-adjusted EBIT/net interest cover ratio (NIC) could now deteriorate over the next two-to-three years. The agency also notes that
interest rates have fallen significantly in recent months and that this will lead to a marked decrease in interest income given the company’s high cash
balance. This negative carry could be another factor which causes Atrium’s NIC ratio to come under pressure. However, Atrium’s NIC ratio may improve somewhat if it chooses to buy back either its 2006 bonds or convertible bonds.

The Negative Outlook is mainly driven by the challenging conditions affecting commercial property companies in CEE and the possibility that this could result in even greater pressure on Atrium’s tenant portfolio than currently anticipated. Fitch will continue to monitor Atrium closely for signs of further
negative pressure on rental income during 2009 and 2010.

However, Atrium’s ratings are supported at their current level by the company’s liquidity position, with cash of EUR1.4bn as of 30 September 2008 able to support committed development spending of EUR426m, and significant covenant headroom. As of 30 September 2008, Atrium’s loan to value ratio stood at 4.6%, well within the covenant level of 60%, and its property portfolio was valued at EUR2.78bn. This marks a decrease of 5% from the EUR2.93bn valuation as of 30 June 2008. Atrium also benefits from little refinancing risk in the medium term with its next debt maturity, of EUR54m, in 2011 and a maturity of EUR554m in 2013 when bonds mature.

LONDON, Feb 25 (Reuters) – British industrial property landlord Segro renegotiated loan covenants on 1.7 billion pounds ($2.5 billion) of debt in a move which could avert a costly investor cash call, lifting its battered shares.

Segro’s new agreements with key lenders increase its maximum gearing covenant — net debt to net worth — to 160 percent from 125 percent. Interest cover covenants, which require net rental income to cover net interest charges 1.25 times, are unchanged.

Segro, which had 5.1 billion pounds of assets at June 30, said on Wednesday the covenant renegotiations provided “valuable additional headroom” in a challenging property market.

Its shares, which fell to a 16-year low at 84.5 pence on Tuesday, were up 18 percent to a six-day high at 102.25 pence by 1005 GMT.

Segro’s announcement should dampen speculation it could be the next British real estate investor to succumb to an emergency rights issue as plummeting property values push loan-to-value covenant limits close to breach.

But some analysts said the company’s battle to preserve balance sheet strength in the face of a record commercial property price correction was not over. “Depending on capacity to withstand future valuation falls, the company may be able to make do without a rights issue,” one analyst, who declined to be named, said.

“Even so, covenant renegotiations are a short to medium-term fix rather than a solution to high leverage. With values still falling… this needs to be accompanied by something more substantial to reduce debt, potentially disposals,” he said.

JPMorgan property analysts described the renegotiations as positive, adding Segro was “not out of the woods” yet. “It still has covenants on its corporate bonds at 175 percent, and we think these –and the loan covenants– may be breached with a further 20 percent decline in values in 2009,” JPMorgan said in a note to clients.

Under terms of the renegotiations, Segro will pay a one-off fee of 8.6 million pounds and its weighted average margin over LIBOR and EURIBOR will rise by around 1.1 percentage points, hiking the weighted average cost of its debt to 5.75 percent from 5.2 percent. (Editing by Dan Lalor) ($1 = 0.6866 pound)