iStar's IDR Slips Due to Liquidity Strains

Fitch Ratings, New York, has downgraded the issuer default rating of the New York-based iStar Financial Inc. in a move driven by continued weakening of iStar's loan portfolio, pressures on liquidity, and the implications of the company potentially entering into a new secured term loan facility in the near future. The IDR was reduced to B- from BB and placed on Rating Watch Negative. For the quarter ended Dec. 31, 2008, iStar recognized approximately $250 million of loan loss provisions and $110 million of corporate loan investment impairments. For full year 2008, iStar recognized over $1 billion of loan loss provisions and nearly $300 million in asset impairments. Non-accrual loans increased from 9% at the end of 2007 to over 27% at the end of last year, and Fitch said it expects things to get worse in 2009. "Continued reduced capital availability in the commercial real estate debt capital markets has decreased the ability of iStar's borrowers to repay loans, as many borrowers historically have refinanced their loans via the secured debt markets or have sold assets. The decreased ability of iStar's borrowers to repay loans reduces the company's ability to meet its own future funding obligations and debt maturities from internally generated cash sources. This reduction in cash sources could result in iStar having a liquidity shortfall in 2009 in the absence of accessing external capital, given the magnitude of iStar's future funding obligations and debt maturities over the next 12 months," Fitch said.