Credit rating agency Moody's downgraded the bonds of Dubai Holding Commercial Operations Group (DHCOG) on Monday, citing a deal with lenders to convert a $555 million revolving credit facility into a five-year term loan. Moody's downgraded the notes of conglomerate Dubai Holding's main unit by one notch to B3, while maintaining a review for possible downgrade of the company's B2 corporate family rating (CFR).
The rating action followed a statement by DHCOG on December 30 that the company had reached a deal with lenders to convert the $555 million revolving credit facility into a five-year term loan. DHCOG, Dubai Holding's loss-making hospitality and property arm, had extended for a third time the loan due November 30, to December 30.
"Despite the limited information so far regarding the new terms, Moody's believes that the banks may now be in a preferential position vis-a-vis bondholders," said Martin Kohlhase, analyst at Moody's in Dubai. Moody's maintained its review for possible downgrade of the medium term note (MTN) ratings and the probability of default rating (PDR).
Moody's said it was maintaining the PDR at B3 to indicate continued high default risk until the capital market debt is refinanced over the next 14 months. The agency said DHCOG had a $240 million MTN maturing in July 2011 and a $500 million MTN in February 2012. Moody's had downgraded DHCOG in June to B2 from B1 over the challenges in Dubai's real estate market. Dubai government-linked companies have been hit hard by the global financial crisis and property collapse in the region.
DHCOG, a unit of the conglomerate owned by the Gulf Arab emirate's ruler, took a big hit from its exposure to Dubai's property crash and said in June it might sell assets to deal with its debt after posting a $6.2 billion loss for 2009. State-owned conglomerate Dubai World sent global markets reeling in 2009 when it requested a standstill on almost $25 billion of debt. The company secured unanimous approval for its restructuring plan in under a year.