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NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings assigns a 'BB+' credit rating to the $250 million unsecured term loan closed by DDR Corp. (NYSE: DDR). The term loan consists of a $200 million tranche that initially bears interest at an annual rate of LIBOR plus 210 basis points (swapped into a fixed rate of 3.64%) and matures on Jan. 31, 2019 and a $50 million tranche that initially bears interest at an annual rate of LIBOR plus 170 basis points and matures on Jan. 31, 2017. Proceeds from the term loan will be used to retire $184.1 million of convertible notes maturing in March 2012, reduce the outstanding balances under the company's revolving credit facilities, and for general corporate purposes. (See the full list of ratings below.)

On Jan. 13, 2012, Fitch upgraded DDR's IDR to 'BB+'. The upgrade reflected sustained improvements in the company's operating performance, driven by positive leasing trends across the retail property portfolio. Fitch anticipates that favorable fundamentals coupled with redemptions of preferred shares will further increase DDR's fixed charge coverage. The company's largely prime portfolio also exhibits a manageable lease expiration schedule and a granular tenant roster. In addition, DDR's recently announced joint venture (JV) with Blackstone Real Estate Partners VII, a real estate fund managed by The Blackstone Group L.P. (NYSE: BX; Blackstone, Fitch IDR of 'A+' with a Stable Outlook), will broaden DDR's JV platform and provide incremental earnings primarily from a preferred equity investment in the venture.

DDR's liquidity position should continue to improve, in part from the new unsecured term loan of at least $200 million that will be used to repay near-term unsecured bonds. The upgrade broadly reflected management's focus on improving the company's credit profile via improved liquidity through retained cash flow as well as reduced development risk.

Offsetting these credit strengths, the 'BB+' rating takes into account that the company's leverage is declining but remains appropriate for the 'BB+' IDR. DDR's unencumbered asset coverage ratio also indicates contingent liquidity consistent with a 'BB+' rating.

Fundamentals are solid. During the first three quarters of 2011, overall leasing spreads including new leases and renewals increased by 5.4%, 6.0%, and 7.3%, respectively. DDR's same-store net operating income (NOI) has outperformed peers and the retail property markets in general due to good locations and tenant demand. Fitch anticipates that demand will remain strong and drive low-single-digit same-store NOI growth over the next 12-to-24 months. DDR's fixed charge coverage ratio (recurring operating EBITDA including recurring cash distributions from unconsolidated entities less recurring capital expenditures and straight-line rent adjustments divided by interest incurred and preferred dividends) was 1.8 times (x) in third quarter 2011 (3Q'11) and 1.7x for the trailing 12 months ended Sept. 30, 2011, compared with 1.6x in 2010 and 1.7x in 2009.

Pro forma for the Blackstone JV and new unsecured term loan, fixed charge coverage would remain at 1.8x and Fitch anticipates that coverage will approach 2.0x, which is solid for a 'BB+' rating. In a downside case not expected by Fitch in which same-store NOI declines are consistent with DDR's performance in 2009, fixed charge coverage could approach 1.5x, which would be weak for a 'BB' rating.

Pro forma for the Blackstone JV, 88.7% of the NOI from DDR's portfolio will be derived from prime properties. These properties are largely in market-dominant locations within areas that have strong household income profiles and population density. Across the entire portfolio, DDR has a manageable lease expiration schedule as of Sept. 30, 2011 with 12.8% of leases expiring in 2012 and 12.1% expiring in 2013. In addition, the company's top five tenants contribute modestly toward revenues and include Wal-Mart (IDR of 'AA' with a Stable Outlook) at 3.2%, TJ Maxx/Marshalls/Homegoods at 2.1%, PetSmart at 1.9%, Publix at 1.9% and Kohl's at 1.8% (IDR of 'BBB+' with a Stable Outlook).

Fitch has a positive view of DDR's growing JV platform, as it provides supplementary revenue via common and preferred equity returns along with fee income. DDR will raise common equity through a 19 million share forward-equity offering and use the net proceeds to purchase a 5% common equity stake and $150 million preferred equity stake with a 10% return in the Blackstone JV. The JV will own the EDT Retail Portfolio comprised of prime power centers underwritten at a 7.4% capitalization rate and DDR will continue to provide property management and leasing services for the properties.

DDR has an improving liquidity profile. As of Sept. 30, 2011, base case liquidity coverage calculated as sources of liquidity (unrestricted cash, availability under the company's revolving credit facility and projected retained cash flows from operating activities) divided by uses of liquidity (pro rata debt maturities and projected recurring capital expenditures) was 0.8x for Oct. 1, 2011 to Dec. 31, 2013.

Pro forma for the equity offering used to fund DDR's investment in the Blackstone JV, a new unsecured term loan used to address a March 2012 convertible debt maturity and pay down borrowings under the revolving credit facility, and a recent increase in the company's common stock dividend, liquidity coverage would remain at approximately 0.8x. Assuming a 90% refinance rate on upcoming secured debt maturities, liquidity coverage would be solid at 2.3x from Oct. 1, 2011 to Dec. 31, 2013.

DDR has a staggered debt maturity schedule. As of Sept. 30, 2011 and pro forma for a new unsecured term loan, 12.6%, 9.7% and 8.6% of pro rata debt matures in 2012, 2013 and 2014, respectively.

Leverage remains consistent with a 'BB+' rating. Net debt to 3Q'11 annualized recurring operating EBITDA including recurring cash distributions from unconsolidated entities was 8.3x compared with 8.6x at Dec. 31, 2010 and 10.0x at Dec. 31, 2009. Retained cash flow used to repay debt has lowered leverage. Fitch anticipates that the equity offering will reduce leverage to 8.1x and that improving fundamentals will push leverage below 8.0x over the next 12-24 months. In a downside case not expected by Fitch in which same-store NOI declines are consistent with DDR's performance in 2009, leverage could increase to approximately 8.5x, which would be appropriate for a 'BB' rating.

DDR has good access to capital but contingent liquidity that is appropriate for the 'BB+' IDR. Unencumbered assets (unencumbered NOI for the trailing 12 months ended Sept. 30, 2011 divided by a stressed capitalization rate of 8%) to unsecured debt was 1.5x. However, retained cash flow as well as new unsecured debt used to repay secured debt should result in improving unencumbered asset coverage. In addition, the covenants under the company's credit agreements do not restrict financial flexibility.

The two-notch differential between DDR's IDR and preferred stock rating is consistent with Fitch's criteria for corporate entities with an IDR of 'BB+'. Based on Fitch Research on 'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis', available on Fitch's Web site at [ www.fitchratings.com ], these preferred securities are deeply subordinated and have loss absorption elements that would likely result in poor recoveries in the event of a corporate default.

The Stable Outlook reflects Fitch's view that fixed charge coverage will approach 2.0x, leverage will decline slightly below 8.0x and that base case liquidity coverage will continue to improve primarily through new secured and unsecured debt refinancings while DDR maintains good borrowing capacity under its revolving credit facility.

The following factors may have a positive impact on DDR's Outlook:

--Fixed charge coverage sustaining above 2.0x (3Q'11 pro forma fixed charge coverage was 1.8x);

--Net debt to recurring operating EBITDA sustaining below 7.5x (pro forma leverage was 8.1x);

--A sustained base case liquidity coverage ratio of above 1.0x (pro forma base case liquidity coverage was 0.8x for the period Oct. 1, 2011 to Dec. 31, 2013).

The following factors may have a positive impact on DDR's rating:

--Fixed charge coverage sustaining above 2.0x as noted above;

--Leverage sustaining below 7.0x;

--Unencumbered asset coverage of unsecured debt sustaining above 2.0x (unencumbered assets - valued as unencumbered NOI for the trailing 12 months ended Sept. 30, 2011 divided by a stressed capitalization rate of 8% - to unsecured debt was 1.5x).

The following factors may have a negative impact on DDR's ratings and/or Outlook:

--Fixed charge coverage sustaining below 1.8x;

--Net debt to recurring operating EBITDA sustaining above 8.5x;

--Reductions in liquidity coverage.

DDR is a real estate investment trust (REIT) based in Cleveland, Ohio in the business of acquiring, developing, redeveloping, leasing, and managing shopping centers and other retail properties. As of Sept. 30, 2011, the company had $9.1 billion in gross book assets, a common equity market capitalization of $3 billion, and a total market capitalization of $7.7 billion. As of Sept. 30, 2011, DDR had an economic interest in 450 shopping centers and operated an additional 88 shopping centers.

Fitch assigns the following rating:

--$250 million unsecured term loan 'BB+'.

Fitch rates DDR as follows:

--Issuer Default Rating (IDR) 'BB+';

--$815 million unsecured revolving credit facilities 'BB+';

--$1.7 billion senior unsecured notes 'BB+';

--$489.3 million senior unsecured convertible notes 'BB+';

--$375 million preferred stock 'BB-'.

The Outlook is Stable.

Additional information is available at '[ www.fitchratings.com ]'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'DDR Corp. Full Rating Report', Jan. 26, 2012;

--'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis', Dec. 15, 2011;

--'Corporate Rating Methodology', Aug. 12, 2011;

--'Recovery Rating and Notching Criteria for Equity REITs', May 12, 2011;

--'Criteria for Rating U.S. Equity REITs and REOCs', March 15, 2011.

Applicable Criteria and Related Research:

Criteria for Rating U.S. Equity REITs and REOCs

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=610687 ]

Recovery Rating and Notching Criteria for Equity REITs

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=628490 ]

Corporate Rating Methodology

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229 ]

DDR Corp.

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=668089 ]

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