Kohan Properties suffers downgrade: Bond interest rate to jump to 8.25%

The overseas income-producing real estate company is facing a double blow: a sharp rating downgrade by Midroog and an immediate increase in its financing costs, which will increase its expenses.

Rating agency Midroog downgraded Kohan Properties' Series A bonds by two notches, from A3.il to Baa2.il. As a result, and in accordance with the trust deed terms, the annual interest rate on the bonds will automatically rise from 7.75% to 8.25%, a move that will increase the company's financing expenses.

Overseas income-producing real estate company Kohan Properties reported a significant negative development in its financial activity today. Rating agency Midroog announced a two-notch downgrade of the company's Series A bonds, from A3.il to Baa2.il. The downgrade has an immediate and direct impact on the company's financing costs, as it triggers an automatic interest rate increase mechanism as stipulated in the series' trust deed.

According to Kohan's report, published following Midroog's announcement of October 5, 2026, the annual interest rate on the outstanding principal balance of the Series A bonds will surge. Previously, the bonds bore an annual interest rate of 7.75%. Following the two-notch downgrade, a 0.5% addition is added to the existing interest. Consequently, the updated annual interest rate will stand at 8.25%.

Logan detailed the impact on upcoming interest payments. Because the downgrade took effect in the middle of the current interest period, the next interest payment, scheduled for January 31, 2027, will be calculated on a weighted basis. The weighted calculation reflects an annual interest rate of 8.13698% for this period. However, all subsequent interest periods will bear the full new annual interest rate of 8.25% (or 4.125% on a semi-annual payment basis).

The interest adjustment mechanism, known as a "Step-up", is a common condition in corporate bond trust deeds, and its purpose is to compensate investors for an increase in investment risk, as reflected in a rating downgrade. For the issuing company, this represents an increase in existing debt that expands financing expenses and may weigh on cash flow.

In its report, Kohan Properties noted that the updated interest rate will remain in effect until the full redemption of the series, or until another change in the bond rating, in accordance with the provisions of the trust deed. The company further emphasized that as of its latest financial statements for June 30, 2026, it complies with all required financial covenants.