Moody's may downgrade Archstone-Smith

Moody's Investors Service said the Baa1 senior debt rating of Archstone-Smith Trust remains under review for possible downgrade, where it was placed on May 29 following the announcement that Archstone-Smith was being acquired by a partnership sponsored by Tishman Speyer and Lehman Brothers.

The acquisition closed on Friday.

Under the proposed financing structure, the REIT's leverage will likely initially be in the 70% range, with most debt being secured. Some properties may also be sold, reducing the size and diversity of the firm. These changes in the firm's prospective financial profile would represent a severe weakening of Archstone-Smith's creditworthiness, in Moody's view.

However, the REIT plans to initiate a fully funded redemption offer for its outstanding debt. Should the debt be repaid, the agency expects to withdraw the existing ratings. If debt remains outstanding, Moody's expects to conclude its review with a many-notch downgrade, reflecting the significant negative change in the prospective credit profile of the reorganized firm.

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