A Rising Credit Rating for iStar Financial


The $1.83 billion term loan B making the rounds for iStar Financial carries something that both the company and leveraged loan investors are likely to be pleased about, a BB- credit rating from Standard & Poor’s

The rating represents just how far the company’s overall credit quality has come in the last few years, after bottoming out during the financial crisis, when the commercial real estate lender was left with a portfolio stuffed full of nonperforming loans. 

The five-year senior secured term loan, which S&P reckons would offer full recovery in the event of a payment default, is priced at Libor plus 450 bps, with a 1.25% Libor floor and an original issue discount of 99 cents on the dollar. Investor commitments are due Oct. 10.

JPMorgan and Barclays Capital are joint lead bookrunners on the deal, with Bank of America Merrill Lynch also acting as a lead arranger.

“The loan will be collateralized by $2.25 billion of assets, or 1.25x the $1.8 billion balance,” S&P analysts wrote in an Oct. 3 report. “The collateral includes performing and nonperforming loans, net leases, real estate owned and other assets, and will include most of the same assets that now secure the 2011 facility.”

The new facility also effectively clears the runway of secured debt for the company through 2017.

Moody’s Investors Service on Oct. 4 assigned the facility at B1 rating and upgraded iStar’s corporate family rating to B2 from B3.

iStar Financial, now rated B+ by S&P, was an investment-grade company prior to the financial crisis, with its rating raised to BBB- in 2004, and again to BBB in 2006. But it was downhill from there, unsurprisingly considering the company’s business, with downgrades in Oct. 2008, to BBB-; in March 2009, to BB; in Aug. 2009, to B-; and finally in July 2010, to CCC.

At the time, the company was struggling to meet its funding needs through asset repayments and assets sales, but the pace was slow and increasingly unpredictable given the lack of liquidity in the real estate debt markets and declining property values.

But iStar has spent much of the past few years taking back the collateral underlying its unperforming loans and reducing the size of its balance sheet by paying down its own debt maturities through refinancing and asset sales.

According to analysis reported on Seeking Alpha, loans will soon represent less than a quarter of iStar’s assets, down steadily from more than 70% in 2008, with the balance comprised of a mixed portfolio of real estate, including a huge land portfolio, multiple high profile condo projects, its legacy net lease assets, and some key other investments.

Meanwhile, the company’s income loss from continuing operations has also fallen to $54 million in 2011, from $205.6 million in 2010 and $792.6 million in 2009, according to its latest annual report.

An iStar representative declined to be interviewed for this article.