JDN Unsecured Notes, Stock Upgraded

Fitch likes the recently completed $1.1 billion merger of the Atlanta-based company with Developers Diversified Realty Corp. of Beachwood, OH. Fitch sees the deal as "a strategic fit in terms of asset quality and tenant compatibility, while further enhancing DDR's nationwide geographic presence and increasing the overall asset base of DDR by approximately 30%."

The JDN bonds will remain a wholly owned subsidiary of DDR. Fitch says the DDR acquisition of JDN "could potentially improve bondholders' positions with the unencumbering of certain JDN assets, such as DDR's use of a short-term $300 million unsecured bridge facility to repay $235 million outstanding on JDN's secured bank facility," with the balance applied toward the repayment of JDN's $75 million of senior unsecured notes.

In the acquisition, DDR assumed $584 million of JDN debt, $50 million in preferred stock and the balance through a stock-for-stock exchange of one JDN share for 0.518 share of DDR.

After the closing, Fitch started monitoring DDR's $397 million of senior unsecured notes due 2003 through 2018 at BBB-, and $304 million of preferred stock at BB+.

Analysts William Travers and Brian L. Phillips prepared the analysis. They say the rating outlook for DDR is stable, primarily due to Fitch's stable outlook rating for retail real estate investment trusts generally and to DDR's "exposure to value-oriented and discount retailers, which tend to be more resilient in an economic downturn."