Moody’s rates Merlin notes Baa2

Moody's Investors Service said it assigned a Baa2 rating to the €800 million senior unsecured notes issued by Merlin Properties Socimi, SA under its €2.7 billion euro medium-term note program (unrated).

The instrument rating assigned to the senior unsecured notes is in line with Merlin’s long-term issuer rating of Baa2.

The outlook is stable.

The company intends to use the proceeds to repay an outstanding €500 million bridge to bond facility signed by Metrovacesa SA last April and maturing in 2018, with the remainder to be used for general corporate purposes.

The issue of the notes, which have a 10-year maturity, allows Merlin to extend its average debt maturities to 6.8 years from 5.7 years, lower its cost of debt to 2.28% and increase the percentage of fixed rate debt to 91.8%.

As per the terms of the note program prospectus, the notes rank pari passu with all other existing and future unsecured obligations of the issuer and benefit from a negative pledge, a cross default clause, as well as financial covenants that limit the group's loan-to-value, establish minimum interest coverage levels and minimum amount of unencumbered assets.

Moody’s said the Baa2 senior unsecured rating primarily reflects: (a) The REIT's sizeable asset base of around €10 billion pro forma for the merger with Metrovacesa (Baa2/stable); (b) its diversification across asset classes with leading positions in office and shopping centers in Spain; and (c) the long lease maturity of its contract with Banco Bilbao Vizcaya Argentaria, SA (senior unsecured: Baa1/stable) representing 21% of gross assets excluding non-core assets.

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