Investing.com -- Office Properties Income Trust (NASDAQ:OPI) has seen an upgrade in its issuer credit rating to ’ CCC (WA:CCCP)’ from ’CCC-’ at S&P Global Ratings after a recent private exchange offer. The company also improved its near-term liquidity position, leading to the removal of all ratings from CreditWatch, where they were placed on November 25, 2024. Despite the upgrade, the outlook remains negative.
The company’s March 2029 senior secured notes also saw an upgrade in their issue-level rating to ’B-’ from ’CCC+’, with the recovery rating remaining at ’1’. However, the ratings on the company’s September 2029 senior secured notes and senior unsecured notes remained unchanged at ’CCC’ and ’CCC-’, respectively. The recovery rating for the September 2029 notes was revised to ’3’ from ’2’, while the unsecured notes saw a revision to ’5’ from ’3’.
OPI’s new March 2027 senior secured notes were assigned an issue-level rating of ’B-’ and a recovery rating of ’1’. The negative outlook reflects ongoing liquidity pressure and refinancing risk due to upcoming debt maturities and limited access to capital. The company’s operating performance is expected to remain under pressure due to secular headwinds and significant near-term lease expirations.
As part of its exchange offer, OPI issued $445 million of new 3.25% senior secured notes due 2027 and 11.5 million shares of its common equity. The proceeds were used to account for $340 million of its outstanding 4.5% senior unsecured notes due February 2025. The new 2027 notes will be secured by first-priority liens on 35 office properties, second-priority liens on 19 properties, and guarantees from certain subsidiaries.
In addition, OPI announced the closure of 17 property sales in the fourth quarter of 2024 for a total of $114.5 million. These funds, along with cash on hand, will be utilized to repay the remaining $113.1 million of 4.5% senior unsecured notes due February 2025. The sold properties were 44% occupied, with an average remaining lease term of 2.3 years, which is expected to strengthen the company’s remaining portfolio.
Despite these measures, OPI still faces significant refinancing risk due to upcoming debt maturities and limited access to capital. The company has a mandatory redemption of $125 million of its new 2027 secured notes due by March 1, 2026, and $140.5 million of its senior unsecured notes due June 2026. Other debts include a term loan and revolver due in January 2027, $80.8 million of senior unsecured notes due February 2027, and new 2027 senior secured notes due March 2027.
The company’s operating performance is expected to remain challenged over the next year. As of September 30, 2024, OPI’s leased percentage dropped to 82.8% from 89.9% a year prior. The company’s net operating income declined 5.8% in the first nine months of 2024. The company has 14.2% of its annualized rental income expiring from the end of the third quarter through year-end 2025.
The ratings on OPI could be lowered as its debt maturities approach if a payment default, debt restructuring, or distressed exchange is expected within the following six months. However, a positive action could be taken if the company successfully refinances its upcoming debt maturities and improves its liquidity position.
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