OREANDA-NEWS. Fitch Ratings has assigned a credit rating of 'BBB-' to the inaugural senior unsecured notes offerings due 2020 and 2025 by Washington Prime Group, L.P., a subsidiary of WP Glimcher (NYSE: WPG or the company). The company intends to use the net proceeds from the offering to repay borrowings under its bridge agreement plus accrued and unpaid interest thereon.

On Jan. 15, 2015, Washington Prime Group, L.P. borrowed \$1.19 billion pursuant to the \$1.25 billion bridge agreement that was put in place to facilitate the merger of Washington Prime Group, Inc. and Glimcher Realty Trust (previously NYSE: GRT), which formed WP Glimcher.

Proceeds from the inaugural bond offering will improve WPG's liquidity, and together with proceeds from a joint venture announced with O'Connor Mall Partners, L.P. (O'Connor) detailed below, will result in leverage consistent with the 'BBB-' Issuer Default Rating (IDR) as previously contemplated by Fitch. The Rating Outlook is Stable.

KEY RATING DRIVERS

The 'BBB-' IDR reflects WPG's leverage expected to be in the 6.0x-6.5x range over the next 12-to-24 months compared with 6.9x as of Dec. 31, 2014 pro forma for GRT merger. WPG's credit strengths include stronger mall and other retail real estate asset quality pro forma for the GRT merger and the acceleration of WPG's transition towards self-management, as WPG has retained some members of GRT's management team along with its infrastructure and platform. WPG will retain ties to Simon Property Group, Inc. (NYSE: SPG, IDR of 'A' with a Stable Outlook) for the foreseeable future.

Joint Venture Improves Leverage; Still Above Pre-Merger Levels

Fitch projects that leverage will be 6.8x following the bond offering and closing of the joint venture with O'Connor announced on Feb. 25, 2015, which will result in net proceeds of \$430 million, compared to 6.9x as of Dec. 31, 2014 pro forma for the GRT merger. Leverage remains above the 4.9x level pre-merger as of Dec. 31, 2014.

In 1Q'15, WPG announced that it agreed to sell a 49% partnership interest in five assets to O'Connor. A joint venture to reduce leverage was part of Fitch's expectations at the time of the merger. The joint venture values the assets at \$1.625 billion at an implied 5.25% capitalization rate, indicating that the JV properties are certain of WPG's stronger assets. The sale improves the company's leverage but also signaled the company's willingness to monetize certain high quality assets such as Pearlridge Center located in Aiea, Hawaii and Scottsdale Quarter located in Scottsdale, Arizona.

WPG is targeting leverage of 6.0x-6.5x by 2016, and leverage sustaining below 6.0x may result in positive momentum in the ratings and/or Outlook. Fitch defines leverage as debt less readily available cash to recurring operating EBITDA.

Liquidity Improved but Still Negatively Impacted by Upcoming Maturities

WPG's liquidity coverage ratio improves to 0.6x pro forma for the 2020 and 2025 notes and O'Connor joint venture, compared with 0.3x as of Dec. 31, 2014 pro forma for the GRT merger. Fitch defines liquidity coverage as liquidity sources divided by uses through Dec. 31, 2016. Liquidity sources include unrestricted cash, availability under the company's revolving credit facility, and projected retained cash flows from operating activities. Liquidity uses include pro rata debt maturities, projected recurring capital expenditures, and projected cost to complete development. Should the company refinance 80% of secured debt maturities through 2016, liquidity coverage would improve to 1.1x.

The liquidity coverage ratio is still negatively impacted by debt maturities through Dec. 31, 2016, which total \$767 million, along with development costs that Fitch estimates will total \$297 million.

The company's unencumbered assets (unencumbered net operating income [NOI] divided by a stressed 8.5% capitalization rate) to net unsecured debt is forecasted to decline to 2.0x pro forma, which is reflective of adequate contingent liquidity for the 'BBB-' rating.

Stronger Asset Quality

The GRT merger improved WPG's asset quality as measured by increased stabilized mall sales per square foot and increased portfolio occupancy (93.2% pro forma compared with 92.7% as of Dec. 31, 2014), which Fitch views favorably. Base minimum rent per square foot also increased to \$21.00 pro forma compared to \$20.94 the prior year. The merger also deepened WPG's presence in Midwest markets, while expanding the footprint in California, Florida and Texas.

Tenant concentration is limited, and top tenants include Signet Jewelers at 3.2% of pro forma rent, L Brands Inc. (IDR of 'BB+' with a Stable Outlook) at 2.6% and Foot Locker Inc. at 2.2%. Exposure to JCPenney Company, Inc. (IDR of 'CCC') and Sears Holding Corp. (IDR of 'CC') remain moderate at 1.3% and 1.1% of rent, respectively.

Preferred Stock Redemption Improves Fixed-Charge Coverage

On March 12, 2015, WPG announced the redemption of its 8.125% series G preferred stock, which along with proceeds from the bond offering and O'Connor joint venture, should result in fixed-charge coverage of 1.9x pro forma. Fitch defines fixed-charge coverage as recurring operating EBITDA less recurring capital expenditures and straight-line rent adjustments divided by interest incurred and preferred stock dividends.

GRT Team and Infrastructure Added; SPG Long-Term Ties at Board Level

Mark Ordan serves as WPG's Executive Chairman and Michael Glimcher serves as WPG's Vice Chairman and Chief Executive Officer. By inheriting GRT's platform including property management, IT and other functions, the GRT merger is allowing WPG to terminate its transition services agreement ahead of schedule and accelerate WPG's independence from SPG. Over the long term, WPG's ties to SPG will be limited to the board memberships of David Simon and Richard Sokolov.

KEY ASSUMPTIONS
Fitch assumes the following for WPG over the next 12-to-24 months:
--2.5% to 3% same-store NOI growth primarily driven by positive re-leasing spreads;
--Ongoing refinancing of debt maturities, capital expenditures and development with long-term capital sources, primarily unsecured bonds along with retained cash flow;
--Adjusted funds from operations payout ratio in 60-65% range, resulting in retained cash flow annually of approximately \$110 million;
--Further unencumbering of the portfolio.

RATING SENSITIVITIES
The following factors may have a positive impact on the rating and/or Outlook:
--Fitch's expectation of leverage sustaining below 6.0x (pro forma leverage is 6.8x);
--Fitch's expectation of fixed charge coverage sustaining above 2.5x (pro forma fixed-charge coverage is 1.9x);
--Fitch's expectation of unencumbered assets, using a stressed 8.5% capitalization rate, coverage of net unsecured debt sustaining above 3.0x (this ratio is 2.0x pro forma).

The following factors may have a negative impact on Washington Prime's ratings and/or Outlook:
--Liquidity coverage sustaining below 1.0x (this ratio is 0.6x pro forma);
--Sustained deterioration in operating fundamentals or asset quality (e.g., sustained negative SSNOI results or negative leasing spreads);
--Fitch's expectation of leverage sustaining above 7.0x;
--Fitch's expectation of fixed charge coverage sustaining below 1.8x.

Fitch currently rates WP Glimcher and Washington Prime, Group, L.P. as follows:

WP Glimcher
--IDR 'BBB-'.

Washington Prime Group, L.P.
--IDR 'BBB-';
--\$900 million senior unsecured revolving credit facility 'BBB-';
--\$500 million senior unsecured term loan 'BBB-';
--Senior unsecured notes due 2020 and 2025 'BBB-'.

The Rating Outlook is Stable.