The company at the center of Sweden’s property crisis was sent even further into junk territory by S&P Global Ratings, a move that will worsen the already severe funding crunch for the troubled landlord.
(Bloomberg) — The company at the center of Sweden’s property crisis was sent even further into junk territory by S&P Global Ratings, a move that will worsen the already severe funding crunch for the troubled landlord.
Samhallsbyggnadsbolaget i Norden AB — or SBB, as it’s more commonly known — was cut in a double downgrade to BB- and placed on negative watch. A lower credit rating translates into higher borrowing costs and moves the company even further from the high-grade investors that helped finance an $8 billion debt pile.
“We see an elevated refinancing and liquidity risk, with investor confidence declining further in the past couple of weeks,” S&P said in a statement, adding that the rating could be lowered again if the firm fails to sell assets and is unable to restore market confidence.
SBB’s shares are down more than 90% from its peak in late 2021 as a result of higher funding costs, which have put pressure on its business model. While many companies took on a lot of debt during the years of ultra-low interest rates, SBB has become a closely watched bellwether for property firms in Sweden and beyond.
Sweden’s central bank has called on the country’s property firms to strengthen their balance sheets as they have some $6.9 billion of bond debt maturing this year. It also warned that financial stability could be threated if property values were pushed lower by vulnerable landlords selling large volumes of stock quickly.
The downgrade comes just days after SBB replaced Chief Executive Officer Ilija Batljan with Leiv Synnes, previously the chief financial officer of rival property firm Akelius Residential Property AB. While Synnes has pledged to not sell off SBB’s assets at a discount and ruled out another rights issue, his hand may be forced if he is to avert a further ratings slide. On Friday, Bloomberg News reported that Brookfield Asset Management was in early talks with the landlord.
As interest rates have soared, sales volumes in Sweden’s commercial property market have hit the lowest point in a decade, with transactions down 65% this year as sellers and buyers struggle to agree on fair prices.
“Despite the downgrade not coming as a surprise in our view, we regard it credit negative,” Danske Bank A/S’s credit analyst Marcus Gustavsson said in a note. He added that further negative rating actions from both S&P and Fitch Ratings can’t be ruled out.
What Bloomberg Intelligence Says:
SBB valuations may not have reflected its ratings for some time but recent price action shows downgrades matter. S&P’s double downgrade shows the CEO change and statements about the broader strategic review haven’t been enough to avert cuts.
— Tolu M Alamutu, BI credit analyst (Click here for full report)
SBB, which must roll over $1.6 billion of maturing bonds within the next three years, was first cut to junk by S&P a month ago — a move followed by Fitch. Shares dropped as much as 9.8% in Stockholm.
The company’s senior unsecured bonds due in 2029 fell 0.9 cents on the euro to a bid price of 60.5, according to data compiled by Bloomberg. With a corresponding yield of 9.6%, the notes were trading at distressed levels even before this latest downgrade.
(Updates with paragraph on central bank, bonds, shares from fifth paragraph)
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