Refinancing risk returns to CMBS

Refinancing risk has become a reality for another issuer of commercial mortgage-backed securities. Becton CMBS No.1 Pty Ltd has a scheduled maturity date of 18 July 2010 and a final maturity date of 18 January 2012. The structure of CMBS issues with scheduled and final maturities is intended to allow for situations where a timely refinancing of the underlying commercial property fails to eventuate.

Once the scheduled maturity date has passed the issuer is required to commence proceedings to sell the commercial property securing the transaction. Leda Property Group found itself in this situation in February, in relation to a A$300 CMBS issue, but was subsequently able to arrange refinancing.

S&P placed the rating on the five tranches of notes issued by Becton CMBS on CreditWatch with negative implications pending clarification of the refinancing of the transaction. S&P said no committed refinancing had been entered into as yet.

Should a refinancing fail to eventuate, the ratings on the tranches of notes will be lowered.

Bilfinger Berger Australia Pty Ltd. has been assigned a 'BBB-' longer term credit rating with a stable outlook by S&P, ahead of its forthcoming IPO (as Valemus Limited). No doubt an offshore bond issue is in the offing.

Competitor, Leighton holdings, which has A$280 million of July 2014 bonds outstanding in the domestic market, had the outlook on its 'Baa1' long-term credit rating from Moody's Investor Service revised to stable from negative.

"The rating action reflects the improved outlook for Leighton's operating environment over the next couple of years," said Maurice O'Connell, a Moody's VP/Senior Analyst. "This is expected to underpin increasing earnings and the company's ability to maintain credit metrics appropriate for the Baa1 rating over the short-to-medium term."