Becton’s Commercial Mortgage Bonds Downgraded by S&P

Standard & Poor’s downgraded commercial mortgage-backed notes sold by a fund of Becton Property Group as the Australian developer seeks to sell assets to repay the debt.

The top class of notes was downgraded five rungs to A from AAA, the ratings firm said today in an e-mailed statement. S&P said it may cut the grades further if it sees an increasing prospect that bondholders won’t be repaid before the legal final maturity of the notes in 2012.

“The downgrades reflect our opinion of the uncertain timing and strategy, and heightened execution risk associated with repayment of the notes,” S&P said in the statement.

Melbourne-based Becton, which is listed on the Australian stock exchange, was forced to sell properties and reduce debt during the global credit freeze. The nation’s commercial real estate market remains weak, with prices down by more than 40 percent from their early 2008 peak, the Reserve Bank of Australia said in May.

The company had no immediate comment on the downgrade when contacted by Bloomberg News today.

Becton sold A$169 million ($149 million) of commercial mortgage bonds in 2007, paying an average margin of 25.9 basis points more than the bank bill swap rate for the debt, according to a press release at the time.

Bondholders have agreed to extend the scheduled maturity of the notes to January 2011, according to S&P. They were originally due this month, and the ratings company said in June that Becton had been unable to refinance the debt.

Commercial mortgage bonds are typically structured with two maturity dates. After the so-called scheduled maturity, the trust that issued the notes can sell the underlying assets to repay the debt. The legal final maturity is the date by which this process should be completed.

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