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US CREDIT-Simon Property debt may be pressured by GGP bid

 NEW YORK, Feb 18 (Reuters) - Simon Property Group's SPG.N
bonds have weakened on its bid to buy General Growth Properties
assets out of bankruptcy, and the company may face ratings
downgrades and further debt deterioration depending on the
success and final ownership details of its bid.
 Simon Property earlier this month offered to pay $7 billion
to pay off General Growth's GGWPK.PK creditors and give
nearly $3 billion to shareholders in a deal that would combine
the two largest U.S. shopping mall owners. For details, see
[ID:nN16210579]
 Standard & Poor's said it may cut Simon Property on the
deal while Moody's Investors Service placed the company under
review with "direction uncertain," citing potential
deterioration in the company's credit profile.
 Simon Property has a history of successfully incorporating
acquisitions and General Growth has a number of assets that
would further enhance its already-diverse portfolio, analysts
said.
 There are risks to the company's ratings and debt, however,
depending on the company's ultimate level of ownership, and the
mix of cash and stock in any deal, they said.
 "The biggest driver of Simon Property's remaining liquidity
position after a deal is its ownership level," CreditSights
analysts Craig Guttenplan and Rob Haines said in a report.
 "Even a 50/50 joint venture arrangement would drain Simon
Property's entire $4.0 billion cash balance and require a
drawdown on its credit facility absent a capital markets
transaction which we believe would have a negative impact on
the company's ratings and spreads," they said.
 Simon Property said it plans to finance the deal with cash
on hand, existing credit facilities and by bringing in
institutional investors for joint ventures on some of the
properties.
 Sources told Reuters last week that the company is in very
early stage talks with Blackstone BX.N about participating in
the bid.
 CreditSights said it views a deal in which the company
takes an ownership stake of between 30 and 50 percent of the
firm as most likely if an offer is accepted, "given Simon
Property's conservative approach to financing and its
dedication to high ratings."
 Simon Property's bonds have weakened on risks from the
proposed deal, however, while the cost to insure its debt with
credit default swaps has risen.
 The cost of insuring the company's bonds for five years has
increased to around 156.5 basis points, or $156,500 per year to
insure $10 million in debt, from 147 basis points on Feb. 15,
before Simon Property announced its bid, according to Markit
Intraday.
 Simon Property's 6.75 percent bond due 2014 has widened to
170 basis points over comparable U.S. Treasuries, from 162
basis points before the announcement, according to
MarketAxess.
 S&P said it may cut Simon Property's corporate credit
rating and unsecured debt from A-minus, the seventh highest
investment grade, saying the size of the acquisition could
weaken its credit profile if the company assumes debt.
 The rating agency also warned it may cut the company's
unsecured debt to one step below its corporate credit rating if
unsecured net operating income falls below S&P's 50 percent
threshold.
 Moody's also said that it may cut Simon Property's debt by
one notch if a transaction worsens the company's long-term
financial profile or if the company takes on secured debt of
more than 35 percent of its gross book assets.
 The rating, on the other hand, may be confirmed if Simon
can mitigate high debt taken on to fund a transaction and
maintain solid operating performance.
 Moody's rates the company A3, also the seventh highest
investment grade.
 (Editing by Chizu Nomiyama)















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