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Moody's downgrades Forest City to B3; outlook negative

Approximately $1.1 billion of securities affected.

New York, July 29, 2009 -- Moody's Investors Service today lowered the senior unsecured debt ratings of Forest City Enterprises, Inc. to B3 from B1, and maintained the rating outlook on negative. This rating action was driven by the continuing weakness in Forest City's credit metrics, particularly its fixed charge coverage (at 1.2x for Q1'09) and net debt/EBITDA (at 16.8x in Q1'09), as well as by persistent challenges in both the real estate market and the credit environment.

The current rating reflects the slowdown in Forest City's core portfolio performance in tandem with the broad economic deterioration: its retail and residential sectors posted negative same property NOI growth of -1.0% and -1.8%, respectively, in the first quarter of 2009. Its office portfolio; however, performed better with same property NOI growth of 4.4%, buoyed by long-term leases and strong results from its life sciences assets. Forest City also faces a significant, although materially curtailed, development pipeline in excess of $2 billion with $777 million in remaining costs. Positively, construction financing is in place for all except $6.4 million, with a portion of the remaining financing ($158.5M) subject to certain leasing hurdles. In addition, Forest City will need to re-finance $159 million of secured debt in its fiscal 2009, which is a reduction from $242 million at YE08.

Nevertheless, Forest City's portfolio continues to benefit from well-laddered lease expirations and no significant tenant exposures. Also, the firm's largely non-recourse borrowing strategy allows it a measure of flexibility when addressing upcoming maturities. Positively, Forest City raised $330 million of equity in May 2009, which allowed the firm to pay down most of its outstandings under the line of credit and meaningfully enhanced its liquidity.

The negative rating outlook reflects the deterioration in debt protection measures experienced by Forest City, as well as Moody's expectation of further weakness in the company's credit profile and earnings over the next several quarters due to the recessionary economic environment and very constrained capital markets.

The rating outlook is likely to return to stable once Forest City's fixed charge coverage has stabilized at above 1.2x and debt/EBITDA is closer to 14x. Maintaining sound liquidity would also be important for the outlook to be stabilized. A downgrade would be precipitated by continued earnings deterioration and resulting further pressure on leverage and coverage metrics, as well as any breach of covenants or liquidity challenges.

Moody's last rating action with respect to Forest City was on December 19, 2008, when the ratings were lowered to B1 from Ba3 and the rating outlook was maintained on negative.

The following ratings were lowered with a negative outlook:

Forest City Enterprises, Inc. -- Senior unsecured debt to B3 from B1, senior unsecured shelf to (P)B3 from (P)B1, senior subordinate shelf to (P)Caa2 from (P)B3, subordinate shelf to (P)Caa2 from (P)B3, junior subordinate shelf to (P)Caa2 from (P)B3, and preferred shelf to (P)Caa2 from (P)B3.

Forest City Enterprises, Inc. [NYSE: FCE-A] is a national real estate company that is principally engaged in the ownership, development, management and acquisition of commercial and residential real estate and land throughout the United States. At April 30, 3009, its assets totaled $12.6 billion.

The principal methodology used in rating Forest City was the Rating Methodology for REITs and Other Commercial Property Firms, which can be found at http://www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating Forest City can also be found in the Credit Policy & Methodologies directory.

CREDIT RATINGS ARE MIS'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MIS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS ARE NOT RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. CREDIT RATINGS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MIS ISSUES ITS CREDIT RATINGS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

Copyright 2009, Moody's Investors Service, Inc. and/or its licensors and affiliates including Moody's Assurance Company, Inc. (together, "MOODY'S"). All rights reserved.

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Provider ID: 00500511 -0- Jul/29/2009 18:57 GMT