Oct. 16, 2009 (Business Wire) -- Fitch Ratings has upgraded the following ratings for Sovran Self Storage, Inc. and Sovran Acquisition Limited Partnership (together, Sovran or the company):
Sovran Self Storage, Inc.
-- Issuer Default Rating (IDR) to 'BBB-' from 'BB+';
-- $125 million senior unsecured revolving credit facility to 'BBB-' from 'BB+';
-- $250 million senior unsecured term loan to 'BBB-' from 'BB+';
-- $250 million senior unsecured term notes to 'BBB-' from 'BB+'.
Sovran Acquisition Limited Partnership (as co-borrower)
-- IDR to 'BBB-' from 'BB+';
-- $125 million senior unsecured revolving credit facility to 'BBB-' from 'BB+';
-- $250 million senior unsecured term loan to 'BBB-' from 'BB+';
-- $250 million senior unsecured term notes to 'BBB-' from 'BB+'.
The ratings have been removed from Rating Watch Negative. The Rating Outlook is Stable.
The upgrades center on recent steps the company has taken to reduce leverage to provide it sufficient cushion relative to covenants contained in certain of its unsecured debt agreements.
The removal of the Negative Watch reflects the material improvement in Sovran's leverage ratios following the curing of the company's unsecured note covenant violation and the company's demonstrated access to the equity capital markets.
On May 8, 2009, Fitch downgraded Sovran's credit ratings by one notch and placed the IDR on Negative Watch due to Fitch's view that the company's total leverage covenant violation limited the company's liquidity and financial flexibility. In May 2009, the company obtained a waiver of the covenant violation as of March 31, 2009, but Fitch remained concerned that the company would continue to have limited capacity to draw its unsecured revolving credit facility in the absence of a deleveraging transaction that would provide sufficient cushion relative to the company's covenant limitations.
Sovran has taken several deleveraging steps to mitigate potential future covenant violations, including an Oct. 5, 2009 follow-on common stock offering of $114 million, a 30% common stock dividend reduction, and the issuance of 1.3 million shares via a DRIP and Share Purchase Plan. The company also intends to preserve capital by scaling back its expansions and enhancement program.
Pro forma for the equity offering and DRIP Share Purchase Plan share issuance, Fitch estimates Sovran's net debt to recurring operating EBITDA ratio to be 4.5 times (x) as of June 30, 2009, compared with 5.9x as of March 31, 2009. Fitch projects that 2010 and 2011 leverage may increase above 5.0x given ongoing challenging operating conditions, but that these leverage levels would remain supportive of a 'BBB-' IDR.
