Moody's Cuts iStar Financial's Ratings

Moody's has cut the ratings of iStar financial, which specializes in commercial real estate lending, to junk. A company spokesperson tells the Wall Street Journal, however, that iStar should weather this fine for the time being.

One of the stunners in the article is the line about Moody's expecting iStar's nonperforming assets to grow to be more than 8 percent of its total assets. That sounds extreme. It's certainly a much higher level of distress than I think currently exists.

Andrew Backman, iStar's senior vice president of investor relations and marketing, called Moody's action "disappointing" but "not surprising." He reiterated that the company has no near-term plans to raise additional debt or equity capital. "There is no immediate impact from losing our investment-grade rating," Mr. Backman said.

Until recently, the biggest challenge facing the company was how it would handle billions of dollars of loans and funding commitments to condominium developers that it assumed when it acquired Fremont General Corp. last year. Those types of assets have a higher chance of default in today's housing slump.

On the positive note, Moody's said iStar appears to have "adequate liquidity" to meet its debt obligations and funding commitments through 2009 "even in a stressed scenario."

Investors often look to iStar -- a bellwether name in the group of lenders specializing in financing commercial property deals -- to get a broad overview of the financial health of the commercial real-estate sector nationwide. So far, that market hasn't seen the kind of devastating losses felt in the residential market. But the worsening credit markets and a weakening U.S. economy have started to take a toll.

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