S&P cut both its corporate credit rating and the issue-level rating on ProLogis' senior unsecured debt to "BBB-" from "BBB+." Both remain investment grade.

The issue-level rating on ProLogis' preferred stock dropped from "BBB-" to the non-investment, or "junk" grade, "BB."

S&P said it holds a negative outlook. The downgrades affect about $6.6 billion of senior notes, plus 350 million euros ($444.2 million) in senior notes and $350 million of preferred stock from the company, which specializes in industrial warehouse and distribution and retail properties around the world.

"The downgrades acknowledge our revised expectation for swifter and deeper erosion of ProLogis' earnings and debt protection measures due to a sharp falloff in proceeds from the sale of developed properties amid poor near-term demand prospects, contracting industrial real estate values, and challenging capital markets," said Standard & Poor's credit analyst Elizabeth Campbell.

Campbell said she expects the company to complete sales to meet its 2009 needs, but the real estate and capital markets are "likely to remain unfavorable into 2010 (when the company's credit facility matures), which would further pressure ProLogis' liquidity."

The company has taken actions S&P sees as "prudent" in response to the recent market turmoil, including senior management changes, suspension of new developments, a dividend cut and work force reductions.

The concern is that if leasing and/or sales volumes remain constrained for a long period, ProLogis could find its completed but unsold properties accumulating and the company could face a cash squeeze unless it issues more stock. S&P noted ProLogis had drawn 68 percent from its credit line as of Sept. 30. Meanwhile, while it has trimmed its pipeline, it still has $7.5 billion in projects in the works, of which roughly $1.4 billion remains to be funded, S&P said.

ProLogis said it was disappointed with the S&P moves, particularly after recently announced cutbacks. "We believe that these strategies, when fully implemented, will enable us to meet all our financial obligations, deal with the difficult conditions in the financial sector and the global economy, and ultimately justify a return to a more appropriate credit rating," Chief Financial Officer Bill Sullivan said in a statement. The ratings changes will not effect its ability to draw on its senior credit facilities into 2010, he said.

In afternoon trading, ProLogis shares added 5 cents to $2.87.