Investing.com -- S&P Global Ratings has downgraded the issuer credit rating of Hudson Pacific Properties Inc . (NYSE: HPP ) to ’B’ from ’BB-’, with a negative outlook. The downgrade is due to the company’s deteriorating key credit metrics, which have been influenced by a difficult operating environment and a weakened macroeconomic backdrop.

Hudson (NYSE: HUD ) Pacific’s credit metrics are expected to continue to face pressure in the near term due to ongoing challenges in the studio and office sectors. Access to capital is also expected to remain restricted, which could lead to liquidity pressure and refinancing challenges.

In addition to the issuer credit rating, the rating agency has also lowered the issue-level rating on the company’s senior unsecured notes with no subsidiary guarantees to ’B’ from ’BB-’, revising the recovery rating on the debt to ’4’ from ’3’. The issue-level rating on the company’s preferred stock has been downgraded to ’ CCC (WA: CCCP )’ from ’B-’.

The negative outlook reflects S&P Global Ratings’ expectation that Hudson Pacific’s portfolio will continue to face challenges, leading to ongoing pressure on credit protection measures. The agency forecasts the company’s debt to EBITDA ratio, adjusted according to S&P Global Ratings’ criteria, will remain around 13x in 2025 before declining to around 12x in 2026.

As of March 31, 2025, the company’s debt to EBITDA ratio stood at 13.0x, up from 10.0x a year prior. The company’s fixed-charge coverage ( FCC (BME: FCC )) also declined to 1.5x from 1.8x over the same period. This decline is attributed to weakened operating performance within its office and studio segments amid industry headwinds and changing industry dynamics. Elevated interest rates, due to macroeconomic uncertainty, have also limited transaction activity and added pressure on the FCC.

After the end of the first quarter in 2025, Hudson Pacific utilized its revolving credit facility and repaid its series B, C, and D private placement notes for a total of $465 million. The company’s $775 million revolving credit facility is set to mature on Dec. 21, 2025, but it has two six-month extension options at the company’s option. The terms of the facility could affect the rating agency’s view of liquidity and recovery if the company needs to secure the revolver.

The company’s capital structure is viewed negatively due to a shorter weighted-average debt maturity profile compared to its peers. Excluding extension options, the company’s weighted-average maturity of debt remains below three years, leading to a negative capital structure modifier score to account for the near-term maturity schedule.

Hudson Pacific’s portfolio continues to face pressure due to ongoing challenges in the office and studio sectors. As of March 31, 2025, the company’s same-property office portfolio was 75.1% occupied and 76.5% leased, compared to 79.0% and 80.5%, respectively, a year prior. Its same-property studio portfolio was 73.8% leased, compared to 76.9% a year prior.

In the first quarter, the company’s same-property net operating income (NOI) decreased by 9.9% on a cash basis, primarily due to lower office occupancy. The company’s weakened studio business performance has also pressured operating performance and NOI amid strikes and labor negotiations.

S&P Global Ratings could lower the ratings on the company by one or more notches if the company is unable to successfully refinance its upcoming debt maturities, if the company’s operating performance deteriorates beyond current projections, or if debt to EBITDA rises to and is sustained above 13x or FCC deteriorates below 1.5x over the next 12 to 24 months.

The outlook could be revised to stable if Hudson Pacific successfully refinances upcoming maturities, maintains a strong leasing cadence and effectively manages upcoming lease expirations while improving occupancy, or if credit protection measures are strengthened such that debt to EBITDA is sustained at or below 11x, with FCC sustained at or above 1.7x.

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