Sweden’s property shortage worsens as another company turns to Junk

(Bloomberg) – Sweden’s beleaguered property sector suffered another blow when one of the capital’s biggest office landlords was downgraded to junk status by Moody’s Investors Service.

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Stockholm-based FastPartner AB saw its rating down one notch to Ba1 with the possibility of further downgrades to come if the company cannot shore up its finances. The decline “reflects the rapid increase in interest rates combined with challenging capital markets thereafter,” Moody’s said in a statement late Friday.

The company’s shares fell 6.6% when trading began in Stockholm on Monday. Its floating rate notes due May 2025 were down slightly to a bid price of 91.9, according to data compiled by Bloomberg.

The property company, with 80% of its rental value in the Greater Stockholm area, joins a growing list of so-called fallen angels who have seen their ratings leave investment grade and move into high yield. The ratings moves are exacerbating a funding crisis in a market that is seen as a canary in the coal mine for Europe’s property sector, given that much of the debt is short-term and floating-rate.

Armed with investment grade ratings, companies such as Samhallsbyggnadsbolaget i Norden AB and Fastighets AB Balder were able to raise billions of dollars of debt in the bond markets in the era of zero interest rates. But with interest rates soaring and the prospect of falling property valuations, homeowners have been increasingly unable to defend their credit ratings despite efforts to offload assets and seek alternative bank financing.

For FastPartner, Moody’s said the benefits of inflation-indexed rents over the coming months “likely won’t be enough to offset pressure on valuations and rising financing costs.”

FastPartner CEO Sven-Olof Johansson played down the latest ratings move, saying in a separate statement that “the credit rating downgrade is of only marginal importance to the day-to-day operations of the business.” .

(Adds bond and stock prices to third paragraph.)

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