LONDON, Jan 9 (Reuters) - French real estate investment trust Klepierre risks a 2009 breach of loan terms tied to around half its 5.3 billion euro ($7.25 billion) total debt, according to JPMorgan credit analysts.
JPMorgan said the Paris-based company -- which owns 240 shopping centres across Europe -- could breach a 52 percent loan-to-value covenant this year as torrid economic conditions accelerate a relatively mild French property correction.
"With a relatively decent portfolio and BNP Paribas controlling over 50 percent of its bank lines, covenant renegotiation should be possible," JPMorgan said in a note.
"However, we are concerned that covenants are being tested so early in the cycle," the analysts added, warning that covenant renegotiation could also have negative repercussions for the firm's bondholders.
While British real estate prices have already fallen more than a third on a summer 2007 peak, the French property market correction is only just underway and experts expect values to slide at a much faster pace this year.
Klepierre, which is rated BBB+ by Standard&Poors, is also exposed to much weaker property markets of Spain, Italy and Portugal, which represent around one quarter of the value of its 12 billion euro portfolio as at June 30.
JPMorgan said Klepierre's aggressive expansion in recent years, including its part in the 2.7 billion euro takeover of Swedish property investor Steen and Strom last July, had ramped up the risks of a breach of its debt covenants.
"It concerns us that this situation could easily have been avoided by not making a large acquisition just as the property market looks to be going into a severe downturn," the note said, adding that it expected S&P to revise Klepierre's credit rating to 'negative' from 'stable' in the near future.
The analysts also suggested that company plans to sell assets to bring equity back on balance sheet would be largely offset by committed expenditure on Klepierre's 4 billion euro, five-year development pipeline. ($1=.7312 Euro) (Reporting by Sinead Cruise; editing by Simon Jessop) (See www.reutersrealestate.com for the global service for real estate professionals from Reuters)