Standard & Poor's Ratings Services raised its corporate credit rating on SL Green Realty Corp. (NYSE: SLG) to 'BBB-' from 'BB+'. The outlook is stable.

At the same time, we affirmed our 'BBB-' unsecured issue-level ratings and withdrew the '2' recovery rating.

The upgrade reflects our expectation that SL Green will use proceeds from asset sales to repay debt and continue to benefit from modest demand and disciplined supply growth in the Manhattan office market," said credit analyst Anita Ogbara. "Over the next two years, we expect debt to EBITDA to decline into the 8.5x to 9.0x area and fixed-charge coverage (FCC) will remain in the 2.0x to 2.5x range. We do not anticipate any significant shifts in financial policy and believe the company will manage future acquisitions and development with a combination of debt and equity."

The stable outlook reflects our expectation that SL Green will continue to use asset sale proceeds to reduce debt. In our view, the company's competitively positioned, high quality N.Y. office portfolio is supported by strong occupancy levels, good quality tenants, and still favorable supply/demand dynamics, which will support improving financial leverage and FCC over the next 12 to 18 months. The stable outlook incorporates our expectation that SL Green will continue to grow its unencumbered asset base.

We would lower ratings if operating performance deteriorates perhaps because of considerable weakness among tenants in the financial and legal sectors or if leverage does not improve with debt to EBITDA remaining above 9.5x or FCC declining to 2.1x on a sustained basis. We could also lower ratings if the company were to further encumber its portfolio with additional debt from acquisitions.

Although less likely, we could raise the rating if the company significantly reduces debt, and continues to outperform similarly sized peers as evidenced by occupancy and rental rate growth resulting in fixed-charge coverage measures in the high 2x area and debt to EBITDA of less than 7.5x on a sustained basis.