Moody's downgrades CB Richard Ellis

Moody's Investors Service, citing strained credit metrics, has downgraded the ratings of CB Richard Ellis' senior debt to Ba2 from Ba1. The credit rating agency said the action reflects its view that improving these metrics over the intermediate term will be difficult given the deep economic downturn and ongoing challenges in the capital markets. The negative outlook reflects Moody's concern that the current economic pressures could be long-lasting and result in further deterioration in the company's operating performance.

At the time of CBRE's acquisition of Trammel Crow, Moody's viewed the rise in leverage as transitional in nature. But the situation has now changed. Moody's said the real estate services business is highly correlated with real estate and economic cycles, especially transactional businesses. 'As a result, CBRE's net debt to EBITDA increased to 4.9X at 12/31/08, a material increase from 2.5X at 12/31/07 and interest coverage declined to 3.4X at 12/31/08 from 6.0X at 12/31/07.

The pressure on the company's operating performance has also caused a deterioration in CBRE's debt covenant cushions, particularly its leverage covenant. Until the credit markets open, Moody's expects CBRE's metrics to remain strained. Positively, Moody's believes the company has adequate liquidity to fund its 2009 debt and operating obligations.

Moody's estimates on net debt and interest cover are disputed by CBRE. The international broker said that any outside party, including Moody's, can only guess at what the precise ratios are. when CBRE's CEO Brett White took part in a conference call with analysts last week on the company's results, he said the net debt to EBITDA ratio was 3.28X and not 4.9X . He said CBRE's interest coverage was 4.7X and not 3.4X as suggested by Moody's.