Ratings agency Fitch has downgraded €210m (£184.5m) of debt owed by Noel Smyth's company Alburn Real Estate Capital for a portfolio of UK property.
The downgrade reflects a drop of 3.2pc in the value of the portfolio during the last three months.
Originally valued at £250m the portfolio includes 46 properties in mainly secondary and tertiary office buildings stretching from Glasgow to Manchester and the south coast.
They are generating an annual rent roll of around £13m. from about 186 tenants some of whom are also retailers.
Alburn offered to buy back the debt from bondholders last January for £140m, or a 40pc discount to its face value. While many of the bondholders agreed to the terms they were rejected by Royal Bank of Scotland. Recently the bondholders appointed new advisers, CBRE and Brooklyn, and Alburn has been in discussions with these advisers.
This latest downgrade does little to enhance the prospects for the bondholders of improving the terms of a restructuring.
The ratings agency said the downgrade of Alburn Real Estate Capital reflected the persistence of weak market conditions for the secondary and tertiary property market "which are eroding the transaction's creditworthiness".
Fitch said it believed that the portfolio's value, currently £129m, reflected a 43pc decline since 2007 and a whole-loan LTV of 151pc, will continue to be constrained by the yield gap that has emerged between prime and non-prime quality assets.
The LTV covenant, previously waived until April 2011 as part of the September 2009 loan restructuring, is in breach.
Smyth is understood to have submitted three restructuring proposals for consideration, which are in the process of being assessed by the servicer and its advisers.
Fitch concluded: "The prospects of further weakening in sentiment and substantial workout costs means that further sharp declines in value cannot be ruled out from Fitch's rating analysis, which explains the extent of the negative rating action taken at this time."