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Washington Prime Group Inc. Downgraded To 'BB' On Deteriorating Operating Performance; Outlook Negative

  • Washington Prime Group Inc.'s operating performance has continued to deteriorate, resulting in credit protection measures above our previously forecast ranges. We don't anticipate much improvement to operating metrics over the next 12 months.
  • On Feb. 22, 2019, S&P Global Ratings lowered its issuer credit rating on Washington Prime to 'BB' from 'BBB-'. The outlook is negative.
  • We also lowered our issue-level ratings on the company's unsecured debt to 'BB+' from 'BBB-' and assigned a '2' recovery rating.
  • The negative outlook reflects our view that Washington Prime's operating environment will continue to be pressured over the next year as ongoing tenant bankruptcies and store closures could further deteriorate its business prospects and credit protection measures.
NEW YORK (S&P Global Ratings) Feb. 22, 2019--S&P Global Ratings today took the 
rating actions listed above. The downgrade reflects our view that both the 
company's business position and credit protection measures have weakened 
because of ongoing tenant stress, and we do not believe these pressures will 
subside over the next 12 months. We expect operating conditions to remain 
difficult, with same-property net operating income (NOI) remaining in the 
negative low-to-mid-single-digit range with EBITDA weakening further from 
current levels, which includes tier 2 properties. Even though Washington Prime 
is focused on delivering positive comps on its tier 1 and open-air portfolio 
in 2020, we view the company holistically, and believe that operating metrics 
will likely be weaker when factoring in the tier two properties. Given our 
expectations, we now have a less favorable view of the company's asset 
portfolio and its competitive position, resulting in a deterioration of the 
financial risk profile.

The negative outlook reflects our view that Washington Prime's operating 
environment will continue to be pressured over the next 12 months as ongoing 
tenant bankruptcies and store closures could further deteriorate its business 
prospects and credit protection measures. We also assume that WPG will 
successfully refinance upcoming debt maturities despite weak operating 
performance.

We could lower our ratings if operating performance deteriorates further from 
our expectations because of increased tenant bankruptcies and continued 
declines in rent renewals. This could result in lower EBITDA margins and 
weaker profitability such that in our view the company's business is less 
favorable when compared to similarly rated peers. We could also lower our 
ratings if the company's financial risk profile deteriorates such that debt to 
EBITDA weakens to around 9x or FFC approaches 1.7x.

Although we do not foresee stabilization until 2020, we could revise our 
outlook to stable if Washington Prime demonstrates an improvement in its 
operating and financial performance, which could include a flattening of 
same-store NOI growth from forecast levels. At that time, we would also expect 
debt to EBITDA and FFC to be sustained at around 8x and 2.0x, respectively. We 
could also revise the outlook back to stable if Washington Prime addresses its 
tier 2 portfolio and preserves cash flows for additional redevelopment needs. 
At the same time, we would expect the company to refinance its $250 million 
unsecured note due in April 2020, well in advance of its maturity. 

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