S&P Global Ratings placed its BB long-term issuer credit rating on Adler Real Estate AG and its BBB- long-term issuer credit rating on ADO Properties SA on CreditWatch positive and CreditWatch negative, respectively, following the companies' planned merger.
Separately, the rating agency changed its ratings outlook on Consus Real Estate AG to positive from stable and affirmed its B rating on Consus and its B- rating on the company's secured notes, following ADO's agreement to acquire a stake in the German developer.
Ratings said the CreditWatch positive also pertains to Adler's issue ratings on its unsecured notes, noting that the CreditWatch factors in the likelihood that it could consider upgrading the company by up to one notch if the ADO deal is concluded.
In the case of ADO, the CreditWatch negative placement takes into account the rating agency's view that the company's acquisition of Adler and stake in Consus could deteriorate ADO's credit profile. Ratings aims to resolve the CreditWatch once the deal closes and it has more clarity on the final funding structure, liquidity position and governance of the combined entities.
The positive outlook on Consus reflects the rating agency's view that it could raise its ratings by up to four notches if ADO were to exercise its call option and take a controlling stake in Consus.
Simultaneously, Moody's placed its Baa3 long-term issuer rating, P-3 short-term issuer rating and Baa3 senior unsecured rating on ADO on review for downgrade, while revising the ratings outlook to rating under review from negative.
Moody's said the projected merged entity will have higher leverage and weaker fixed-charge coverage, compared to ADO on a stand-alone basis. On the other hand, ADO's Consus stake deal would give the company access to higher-quality newly built residential units, but it also indicates heightened risk appetite for residential developments, and immediately lowers the company's cash position for a largely non-yielding asset, the rating agency said.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings.