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CPIPGR: S&P Downgrades to HY
Mary Pollock, CFA - Head of Real Estate
EXECUTIVE SUMMARY
- S&P downgraded CPIPG senior to BB+, from BBB- the morning before the company reported 1Q24 results. This came as a surprise to us, in large part given the timing of the move, i.e. after CPIPG recently issued a bond which was rated BBB-, hours prior to its 1Q24 results publication, and given the recent bond issuance allowed it to extend maturities and exit an expensive bridge facility.
- CPIPG’s liquidity remains strong. This remains a key source of support for the name, which guided it will be looking at liability management options going forward. It has plenty of time to be well positioned for its 2026 maturity pillar in our view.
- Group ICR deteriorated QoQ (CreditSights’ definition) and stood at 2.5x for the seniors only and is down to 2.0x including hybrid interest at 100%. Though we conservatively expect continued ICR erosion going forward, the pace of decline will meaningfully slow.
- Group LTV improved slightly QoQ due to asset sale proceeds and we expect it to continue to improve as further asset sales are completed. The group guided it received €150 mn of net proceed after period end, will receive a further €449 mn in the coming months, and we are cautiously optimistic on the ongoing discussions for JV deals (€250 mn with SONA in Poland and €450 mn with Apollo in Berlin).
- Muddy Waters published another report focused on CPIPG, though we do not expect this installment to meaningfully impact investors’ view of the credit. Despite further speculation about money laundering, which is a major potential concern, we do not view the allegations themselves to be backed by well-constructed arguments.
- The company reiterated a full governance update is expected over the summer. It plans to release a summary of White & Case’s review of the group. It was also clear its past practice of providing shareholder loans will be eliminated. Loans to controlling shareholder Radovan Vitek stood at €0.15 bn at YE23.
RELATIVE VALUE
CPI Property Group (CPIPG) bonds were soft on Friday post the downgrade, with seniors down between -0.5 point to -1.75 and the hybrids down between -1 and -4.75, as per Bloomberg marks. This development is a negative, however, the near term impact on financials is limited (no impact on liquidity, modest impact on interest costs). CPIPG seniors were also already trading more like single-Bs than triple-BBBs reflecting the known risks with the name.
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