OREANDA-NEWS. S&P Global Ratings affirmed its 'BBB-' corporate credit rating on Chattanooga, Tenn. – based CBL & Associates Properties Inc. and subsidiary CBL & Associates Limited Partnership (collectively CBL). We are also affirming our 'BBB-' issue-level rating on CBL's unsecured debt and our 'BB' issue-level rating on its preferred shares. We removed all the ratings from CreditWatch negative, where we placed them on May 26, 2016. The outlook is negative.

"We removed the ratings from CreditWatch to reflect our view of the closed SEC investigation on CBL (regarding the possibility of fraudulent information supplied on four non-recourse loans with no enforceable action against the company) as a positive resolution. The negative outlook reflects our view that the ongoing difficult market conditions (weakening tenant health; widening cap rates; declining investor appetite to acquire 'B' quality malls) has intensified over the past two years, and we no longer believe its business strategy of "only game in town" is as strong of a competitive advantage as we had previously considered," said credit analyst Kristina Koltunicki. "For example, the company's previously announced strategy to dispose of its lower quality malls has become more difficult to execute at cap rates at which management is comfortable selling, despite the recent momentum of dispositions in 2016."

The negative outlook reflects our view that CBL's core asset base will remain challenged by tenant health and uncertain market interest for asset sales and credit market acceptance. These trends could drive a higher cost of capital when refinancing upcoming maturities. These goals includes CBL's ability to dispose of underperforming assets, further unencumber its asset base, and redevelop and re-tenant its properties should store closures and bankruptcies increase over the next two years.

We could revise the outlook to stable within the next 12 months if CBL is able to increase occupancy back to near historical levels and successfully re-lease vacant space at positive rental spreads, and achieve modest same-store NOI growth. A stable outlook could also be driven by good progress in the asset disposition strategy such that debt leverage reach the mid-6.0x and the level of unencumbered assets improves more than 50%.

We could lower the rating if CBL experiences weakness in operating metrics such as occupancy and same-store NOI growth, potentially driven by a failure to re-lease vacant space or to complete redevelopments and developments as expected. We could also lower the rating if CBL is unable to unencumber its asset base to more than 50% of NOI in the next 12 months or is unable to refinance maturities.