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S&P affirms Vonovia, BUWOG ratings on €5.2B merger deal

S&P Global Ratings affirmed its long- and short-term corporate credit ratings on German residential property company Vonovia SE at BBB+/A-2 and its long-term corporate credit rating on Austrian real estate company BUWOG AG at BBB+ in light of the companies' roughly €5.2 billion merger deal.

The rating agency said it expects the deal to expand Vonovia's scale in the short term and to bring the group's asset value to roughly €36.2 billion post-transaction. It added that Buwog's portfolio is "a good fit" with Vonovia's asset profile and will likely bolster the group's presence in Vienna, Berlin and other cities with healthy economic and demographic trends, while slightly expanding its country diversity.

S&P argued, however, that the transaction would not be substantially transformative, given that Buwog's portfolio would only make up about 13% of the merged entity, and that Vonovia would continue to be highly vulnerable to the German economy.

The rating agency said the Buwog rating affirmation reflects its current view on Vonovia's credit quality after the merger and that it would potentially align its credit assessment of Buwog to that of Vonovia once the deal is completed.

S&P's outlook on Vonovia is stable, reflecting its expectations that the company will sustain strong and stable cash-flow generation amid ongoing demand for affordable housing in Germany and will keep its EBITDA interest coverage ratio higher than 2x over the next 24 months. The rating agency also expects Vonovia to successfully integrate Buwog and ensure an ample liquidity cushion after integration.

The rating agency also affirmed the BBB+ issue rating on Vonovia's senior unsecured debt and the BBB- issue rating on the company's subordinated debt.

S&P said its outlook on Buwog remains stable, as it expects the company's credit metrics to stay in line with the current rating while macroeconomic fundamentals and positive demand trends in its main locations are likely to remain solid.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.