Fitch Withdraws iStar Financial's Ratings

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has chosen to withdraw the ratings for iStar Financial for commercial reasons.

Fitch has affirmed and withdrawn the following ratings:

--Issuer Default Rating (IDR) at 'B';

--2012 senior secured tranche A-2 due March 2017 at 'BB/RR1';

--Senior unsecured notes at 'BB-/RR2';

--Convertible senior notes at 'BB-/RR2';

--Preferred stock at 'CCC/RR6'.

The Rating Outlook is Positive.

KEY RATING DRIVERS

The 'B' IDR is driven by lower leverage and material reductions in non-performing loans (NPLs). Further improvements in the company's land and operating property portfolios will likely increase the company's earnings power and cash flows. Stronger performance should be driven by the mild improvement in commercial real estate fundamentals, value stabilization, and financing markets, which increases the likelihood of iStar's borrowers repaying their debt.

Improving Non-Performing Loan Monetizations

The company reduced its gross NPL portfolio 75% from Dec. 31, 2013 to March 31, 2015 through a combination of loans returning to performing status, loan sales and foreclosures. The ability for the company to monetize its NPLs has generated additional cash flow to repay debt and fund new investments. Gross NPLs represented only 8.9% of the total gross loan balance as of March 31, 2015.

Land Portfolio Currently an Earnings and Leverage Drag

The land segment comprises approximately 29% of the book value of the company's cost value of real estate, but generates minimal revenue and a significant segment loss. The segment is currently a cash flow drain as the company invests capital towards improving the land for development and/or sale.

High Leverage

Despite an improved debt maturity profile due to several 2014 refinancings, the company's leverage on a net debt / recurring EBITDA basis was approximately 10x at March 31, 2015 (15x as of Dec. 31, 2013), due to the weak earnings power of the overall portfolio.

On a net debt / undepreciated equity basis, leverage has stabilized at 2.2x at March 31, 2015 (2.1x as of Dec. 31, 2013 and 2.8x as of Dec. 31, 2012 and 2011, respectively.)

Improving Coverage

Fixed charge coverage was only 1.4x for the TTM ended March 31, 2015, albeit improved compared with 0.8x and 0.8x for both years ended Dec. 31, 2013 and 2012. Fitch expects this ratio to strengthen as the company reduces debt from proceeds of loan resolutions and asset sales and begins to recognize additional GAAP earnings from lease-up of assets within its operating property segment, sales of residential properties and land monetization.

RECOVERIES

While concepts of Fitch's Recovery Rating methodology are considered for all companies, explicit Recovery Ratings are assigned only to those companies with an IDR of 'B+' or below. At the lower IDR levels, there is greater probability of default so the impact of potential recovery prospects on issue-specific ratings becomes more meaningful and is more explicitly reflected in the ratings dispersion relative to the IDR.

The 2012 senior secured tranche A-2 secured credit facility rating of 'BB/RR1', or a three-notch positive differential from iStar's 'B' IDR, is based on Fitch's estimate of outstanding recovery in the 91%-100% range. These obligations represent first-lien security claims on collateral pools comprising primarily performing loans, credit tenant lease assets and operating properties.

The senior unsecured notes and senior convertible notes ratings of 'BB-/RR2' or a two-notch positive differential from iStar's 'B' IDR, are based on Fitch's estimate of superior recovery in the 71% - 90% range based on iStar's current capital structure.

The preferred stock rating of 'CCC/RR6' or a three-notch negative differential from iStar's 'B' IDR, is based on Fitch's estimate of poor recovery based on iStar's current capital structure. Fitch's Recovery Rating criteria provide flexibility for a two- or three-notch negative differential between the IDR and instrument rating. A three-notch negative differential is based on the nature of iStar's perpetual preferred stock - a deeply subordinated security that has weak terms and remedies available both before and after a general corporate default (e.g. no stated maturity, an inability for holders to put the security back to the company, and iStar has the ability to defer dividends indefinitely without triggering a corporate default).

KEY ASSUMPTIONS

--Loan repayments, REO and other asset sales assume monetizations between $800 - 850 million annually, offset by $50 million of annual future funding obligations;

--No common stock dividends, as the Company has significant net operating losses, and thus no REIT taxable income for the projection period.

Additional information is available on www.fitchratings.com

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 28 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Criteria for Rating U.S. Mortgage REITs and Similar Finance Companies (pub. 24 Feb 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=861835

Global Non-Bank Financial Institutions Rating Criteria (pub. 28 Apr 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865351

Recovery Ratings and Notching Criteria for Equity REITs (pub. 18 Nov 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=813628

Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis (pub. 25 Nov 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=821568

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=986842

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=986842

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150623006413/en/

Fitch Ratings
Primary Analyst
Steven Marks
Managing Director
+1-212-908-9161
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Sean Pattap
Senior Director
+1-212-908-0642
or
Committee Chairperson
Michael Paladino, CFA
Managing Director
+1-212-908-9113
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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