(Bloomberg) -- S&P Global Ratings cut troubled Swedish landlord SBB to selective default after the real estate company initiated an exchange of its bonds for new securities at a deep discount.

Samhallsbyggnadsbolaget i Norden AB last month gave investors the option to swap their existing bonds into new securities that would be issued by a newly-created residential unit. S&P said Wednesday that the bonds would be bought back at an average price of 60% to 70% to par.

“We view SBB’s debt exchange offer as a distressed restructuring, tantamount to a default, because the lenders will receive less than they were originally promised,” S&P said in a statement. 

Hit by rising interest rates and a consequent plunge in property values, SBB has been looking at alternative ways to meet looming debt maturities. In addition to discounted bond buybacks, the company has also embarked on a process of splitting up its businesses and selling stakes in those units to raise funds. 

Last week, SBB said it would issue €110.9 million ($119 million) of new euro-denominated securities through its new residential unit Sveafastigheter AB, alongside 412.5 million Swedish kronor ($39 million) of domestic debt in exchange for bonds offered by investors. 

S&P said it would maintain the rating on the bonds after the exchange had settled, reflecting “a virtual certainty of default” in the next six to 12 months. S&P said it was likely that SBB would initiate another tender or exchange that the ratings company would consider distressed.

S&P also said the high likelihood of SBB deferring the coupon on its hybrid bonds again was another reason for downgrading the rating on the notes to default. SBB confirmed on Wednesday that it would defer these interest payments indefinitely, in a further effort to conserve liquidity. 

Not all credit graders have taken this approach. Fitch Ratings said the voluntary bond exchange does not constitute a material reduction in terms, and a rejection of the offer would not lead the SBB into “an imminent default,” according to a report dated June 14. Fitch also flagged that some bondholders would benefit by having direct recourse to the residential unit, which is a “better part” of the SBB’s portfolio. 

--With assistance from Stephen Treloar and Boris Korby.

(Updates with Fitch comment, hybrids beginning in seventh paragraph)

©2024 Bloomberg L.P.