Moody's lowered its ratings on the operating partnership of regional mall real estate investment trust CBL Properties and changed the ratings outlook to negative from stable.
The downgrade pertains to CBL & Associates LP's senior unsecured debt rating to Caa1 from B1 and to its corporate family rating to B2 from Ba3.
The rating agency said the move factors in its expectation that CBL's consolidated income available for debt service will drop in the next four quarters, which will significantly reduce the REIT's covenant compliance cushion.
The downgrade also takes into account the company's limited financial flexibility and its substantial near-term capital needs to redevelop the growing vacated space in its malls, including the potential 19 Forever 21 Inc. stores that were announced in the third quarter.
The negative outlook captures the potential for further deterioration in the REIT's operating performance and financial metrics, which could challenge the company's ability to remain in compliance with the covenants under its bond and secured credit facility, Moody's added.