CB Richard Ellis Draws S&P's Interest

LOS ANGELES-Credit-rating giant Standard & Poor’s has put takeover target CB Richard Ellis Services Inc. on its “CreditWatch” list with negative implications, citing factors that include “very high” debt levels and uncertainty over a management-lead group’s effort to take the company private in a deal valued at $740 million.

LA-based CB Richard Ellis, one of the world’s largest commercial real estate firms, announced earlier this week that it is weighing a $15.50-per-share buyout offer from Blum Capital Partners LP, which already owns about 38% of the company’s stock. Privately held Blum Capital includes a number of current CB Richard Ellis executives and directors, among them CEO Ray Wirta and Brett White, the company’s “Chairman of the Americas.”

When a company on S&P’s CreditWatch list is given a “negative” designation, it means that the rating may be lowered in the future. S&P currently has assigned a B+ rating to CB Richard Ellis’ subordinated debt. Its long-term counterparty credit rating is BB.

Though S&P noted that CB Richard Ellis is undertaking a series of cost-cutting measures, it said the company’s current debt levels remain high and that its debt-coverage ability hasn’t improved since the brokerage company’s ratings outlook was first changed to negative in August 1999. Much of that debt was taken on as part of the firm’s aggressive expansion efforts in the ’90s, the credit-rating company said.

In a 13-d filing with the Securities and Exchange Commission earlier this week, Blum Capital said it had asked Credit Suisse First Boston to provide $600 million in financing to complete the transaction. According to the filing, the loan package requested by the group would include up to $275 million in senior secured loans and $100 million in revolving credit. It would also include as much as $225 million in subordinated bonds, often referred to as “junk bonds.”

Standard & Poor’s noted that the SEC filing says that, prior to closing the proposed deal, the company would tender for all of the outstanding 8 7/8% senior subordinated notes. However, S&P added, “uncertainties” surrounding the buyout and final financing package warrants the negative designation.