Elbit Bond Yield Soars Most in 3 Months on S&P Rating Downgrade

Elbit Imaging Ltd. (EMIT)’s 2020 bonds fell, lifting the yield up the most in more than three months, after Standard & Poor’s Maalot cut the real estate investor’s credit rating amid concern on upcoming debt payment ability. Benchmark government bonds rose.

The yield on Elbit Imaging’s 5 percent notes due April 2020 soared 615 basis points, or 6.15 percentage point, the most since Sept. 19, to 50.95 percent at 12:38 p.m. in Tel Aviv. Its shares dropped 6 percent. The government’s 5.5 percent bonds due January 2022 rose, pushing the yield down two basis points to 3.64 percent.

S&P on Dec. 27 cut Elbit’s rating to ilB, seven notches above default, from ilBBB saying the company’s weak liquidity is putting pressure on its ability to serve its debt in the coming year. The deterioration in financial flexibility also results from a delay of asset sales by its Netherlands-based unit Plaza Centers NV (PLAZ) limiting the possibility of dividend payments, S&P said. Plaza Centers’ rating was lowered to B- from B and placed on creditwatch negative by S&P.

“The company will need to come up with a solution to its liquidity issues and maybe advance asset sales,” said Avihay Hermon, a bond analyst at Psagot Investment House Ltd.

Elbit, which will need to make 640 million shekels ($169 million) in principal and interest payments in 2013, has a cash flow of 82 million shekels, according to S&P. The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, was little changed at 280.69.

The two-year break-even rate, the yield difference between the inflation-linked bonds and fixed-rate government debt of similar maturity, fell four basis points to 205, implying an average annual inflation rate of 2.05 percent.

The shekel was little changed at 3.7305 a dollar on Dec. 28. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, declined less than one basis point to 1.65 percent.

To contact the reporter on this story: Sharon Wrobel in Tel Aviv at swrobel4@bloomberg.net

To contact the editor responsible for this story: Alaa Shahine at asalha@bloomberg.net

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