Moody’s has downgraded the debt of London’s Canary Wharf Group, in the newest sign of troubled waters facing the commercial real estate industry globally.
The ratings firm downgraded the the group from Ba1 to Ba3, in a move which it said will likely see Canary Wharf Investment Holdings revert to asset sales to help it repay borrowings or will have to refinance the estate.
The REIT has more than £1.4bn of debt due over the next two years.
Moody’s has downgraded the debt of London’s Canary Wharf Group, in the newest sign of troubled waters facing the commercial real estate industry globally.
The ratings firm downgraded the the group from Ba1 to Ba3, in a move which it said will likely see Canary Wharf Investment Holdings revert to asset sales to help it repay borrowings or will have to refinance the estate.
The REIT has more than £1.4bn of debt due over the next two years.
The ratings firm placed the group on review for further downgrade to the long-term corporate family rating and predicted a turbulent funding environment in the coming months with “difficult operating and funding environment for real estate companies”.
“[Canary Wharf Group] has been somewhat aggressive in managing its refinance risk by overly prioritising obtaining the best covenant-lite structure over refinancing debt well before its due date,” it added.
The company’s £300m bond, which is due for repayment in 2028, is being quoted at 68.7p in the pound.
Current socio-economic factors, including the steep rise in interest rates, have directly affected the landlord’s borrowing costs and had a knock-on affect on valuations.
This has contributed to a growing funding gap for landlords with existing loans as lenders look to reduce debt offering and has resulted in landlords looking to offset assets or to consider equity injections.
The investment market is still feeling the effects of this correction, which has seen deal times lag as overall “cautious investor appetite” has resulted in“low transaction volumes” and made it “difficult to sell assets without offering substantial discounts,” Moody’s said.
This has also been exacerbated by the recent banking crisis which has also put “downward pressure on values”.
The ongoing pricing gap between vendors and buyers has also made it increasingly “difficult to sell assets without offering substantial discounts,” it added.
CWG currently develops, manages and owns around 9m sq ft of mixed-use space, including offices and more than 1,100 build-to-rent apartments on the estate.
It recently saw TC BioPharm, a clinical stage biotechnology company; NeuralRays AI, an AI company; and Sanius Health, a health tech company dedicated to improving rare diseases treatment move into One Canada Square in a bid to reinvigorate the district as a life sciences hub.
A spokesperson for CWG said: “The credit rating reflects the broader market environment. We are in a strong financial position, have significant equity in the business with net assets of £3.6bn and a loan to value ratio of 50.8%.”
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