Canary Wharf Group’s credit rating cut further into ‘junk’ amid office exodus
Canary Wharf Group’s credit rating was cut deeper into “junk” status by Fitch as the east London financial district struggles to attract workers to its offices and battles an exodus of star tenants.
On Wednesday, the rating agency moved CWG down three notches from BB to B, or “highly speculative”, while cutting its senior secured debt from BB+ to BB-.
Fitch said its new ratings “reflect the continuing short-term refinance risk” of CWG’s £350m bond due next April and “prospective cash flow constraints”.
As of June, CWG had £4.2bn of gross debt through complex structures including two other bonds maturing in 2026 and 2028 respectively.
Fitch’s latest downgrade comes as CWG, owned by private equity giant Brookfield and the state-owned Qatar Investment Authority (QIA), grapples with post-pandemic remote working trends and higher interest rates that have shattered the value of its office space.
The value of CWG’s office portfolio has plunged by some £1.5bn to £4.27bn since 2021. Meanwhile, numbers from the second quarter of last year showed that Canary Wharf’s office occupation was just under 85 per cent, down from pre-pandemic levels that were consistently above 90 per cent.
Star tenants HSBC and law firm Clifford Chance are due to leave by 2026 and 2028 respectively as part of downsizing efforts, although Wall Street giant Morgan Stanley has added another decade to its lease.
Fitch and Moody’s both cut CWG’s ratings last year. The latter firm itself plans to quit the Wharf for a new London office in the City.
CWG’s owners have told the landlord’s auditors they are ready to provide financial support if needed, having already pumped in £300m of new equity.
City PM understands CWG has held talks to address the bond maturing in April by raising debt against its four underground shopping centres.
It is also said to be considering selling a stake in the malls, valued at £887.9m and boasting tenants including Zara and Watches of Switzerland.
CWG has cleared all the immediate debt deadlines for loans tied to specific buildings through several major refinancings this year.
Bosses have said these deals shows lenders’ confidence in CWG’s plan to transform the district into a “mixed-use neighbourhood” with more residential and green space.
Fitch noted the “evolution of the campus from pure offices to mixed-use is continuing with more than 3,500 people now living on the Wharf”.
Earlier this year, CWG extended £564m of loans due in November by five years, secured against an office tower partly occupied by Société Générale, and paid down around £100m of the debt.
It has also renegotiated loans on other properties like the Barclays and EY towers to extend them into the 2030s.
Fitch warned that if CWG’s 2025 and 2026 bonds are refinanced at higher interest rates, its “interest cover” would deteriorate. The financial metric measures a company’s ability to pay interest on its debts.
CWG’s “subordinated post-debt service income has reduced considerably” after its 2024 refinancing, Fitch said. It noted that the 2026 expiry of some office leases to Citibank would further contribute to lower earnings before tax (EBITDA) and worsen CWG’s leverage and interest cover.
City PM approached CWG for comment.