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Global Credit Research - 29 Jul 2010
EUR 1,251 million of Commercial Real Estate Loans affected
London, 29 July 2010 -- Moody's Investors Service has today affirmed the ratings of two commercial
real estate loans advanced to Tree Inversiones Inmobiliarias, S.A.
(the "Borrower") of:
....EUR1,139.0 million Senior
Loan maturing in September 2017, Affirmed at A3; previously
on September 24, 2009 Assigned A3
....EUR112.2 million Mezzanine Loan
maturing in May 2017, Affirmed at Baa2; previously on September
24, 2009 Assigned Baa2
The affirmation of the ratings of the two commercial real estate loans
(the "Loans") maturing in 2017 relates to the debt financing of a sale-and-lease
back transaction comprising initially 944 bank branches and three office
buildings located throughout Spain (the " Initial Properties").
Today's affirmation follows the analysis of the initial transaction
including the intended acquisition by the Borrower of a further 153 bank
branches and two office buildings (the "Additional Properties",
together the "Properties"). The acquisition of the
Additional Properties will be financed by an increase of the existing
Senior Loan to EUR1,139.0 million from EUR917.5 million,
a EUR20.7 million increase to EUR112.2 million of the existing
Mezzanine Loan and additional sponsors' equity. The Properties
are currently all occupied by Banco Bilbao Vizcaya Argentaria, S.A.
("BBVA" or "Tenant"), (Aa2, negative outlook). Following
the intended acquisition, the transaction will be similar to the
transaction at the initial closing date (September 2009) and based on
the same transaction structure, sponsors' disposal plan,
similar LTVs and strengths and weaknesses (as described below).
The affirmation of the ratings of the Loans are based upon (i) Moody's
assessment of the real estate quality and characteristics of the underlying
Properties; (ii) the loan-to-value ratio over the term
of the Loans and at the loan maturity date taking into account the sponsor's
disposal plan; (iii) the debt service coverage over the term of the
Loans; (iv) an analysis of the loan, intercreditor and security
agreements backing the Loans; (v) the paydown structure between Senior
Loan and Mezzanine Loan, which are cross defaulted and cross collateralised;
(vi) an analysis of the Borrower structure, including its flexibility
to substitute properties over time; (vii) Borrower-level inflation
rate and interest rate hedging provided by the initial hedging banks (Deutsche
Bank AG, London Branch (Aa3, P-1), ING Belgium
SA/NV (Aa3, P-1), Barclays Bank PLC (Aa3, P-1)
and Caja de Ahorros y Pensiones de Barcelona ("La Caixa") (Aa2,
P-1)) and additional hedging banks (Natixis (Aa3, P-1)
and Societe Generale (Aa2, P-1)); (viii) the other legal
and structural features of the Loans; and (ix) the performance of
the transaction since initial closing date.
The Loans will also be secured by way of first and second ranking legal
mortgages. The filing of the additional mortgages will happen within
60 days from the financing date and the registrations are expected within
the following 12 months. In addition, a share pledge and
lease assignment form part of the security package. The triple
net leases with BBVA as initial tenant have a 30 year term for the bank
branches and a 20 year term for the office buildings and in both cases
are starting from the financing date. Furthermore, BBVA is
providing a backstop guarantee of the Tenant's obligations, in particular
in case of lease assignment.
The rental payments due from the Tenant will be adjusted annually based
on the European inflation index ("HICP") and a multiplier of 1.85x
(until 2017), subject to a floor of 2.5% in the first
three years from the financing date. In order to convert these
variable cashflows received from the Tenant into fixed-uplift cashflows,
the Borrower has entered into an inflation swap with the respective hedging
banks in respect of the Initial Properties. For the Additional
Properties, the Borrower does not enter into an inflation swap.
Instead, excess rental cash flows will be partially trapped to build
up a reserve that can be used to cover cash flow shortfalls to pay debt
service payments. Taking into account this reserve amount,
the debt service coverage ratios will be equal to, or higher than,
those for the financing of the Initial Properties.
Before the maturity date, the balances of the Loans will reduce
by way of scheduled amortisation. The Mezzanine Loan is expected
to amortise in full by May 2017, whereas the Senior Loan will amortise
more slowly, having a larger balloon payment at the maturity date
(September 2017), and it is expected to pay down mainly through
prepayments and disposals. Disposal proceeds will be subject to
a release premium of 122.5% to be used in amortising the
Senior Loan, and disposals are not subject to any limitations.
Moody's current market value for the Properties is EUR1.5 billion
resulting in a LTV of 75.4% based on the day-1 Senior
Loan balance and 82.9% on the total balance of the two Loans.
This compares to an underwriters ("U/W") market value of EUR1.9
billion resulting in a LTV of 59.6% based on the day-1
Senior Loan balance and 65.4% on the total balance of the
Loans. The Moody's market value is driven by the lease profile
with BBVA as strong covenant. On a VPV basis, Moody's value
is EUR817 million compared to the U/W VPV of EUR992 million, resulting
in a Moody's LTVPV of 153% and a underwritten LTVPV of 126%
on total balance day-1. This compares to a Moody's
LTVPV of 149% and 127% underwritten LTVPV at the initial
closing date. As a result, the haircuts to the U/W market
value and VPV are approximately 21% and 18%, respectively.
This is mainly driven by an adjustment to the ERV's, void periods
and cap rates used in the U/W valuation. The increase of Moody's
LTVPV mainly results from an adjustment to the U/W ERV's and void
periods of the Additional Properties. At loan maturity, Moody's
assumes that the LTV will range between 55% to 65%,
whereby the reduced LTV will be mainly the result of increased rental
cashflows due to indexation, scheduled amortisation of the Loans
and importantly by principal prepayments plus release premia stemming
from property disposals.
The key strengths of the Loans include; (i) the long occupational
triple net leases with BBVA subject to rental uplifts based on the European
inflation index, with such obligations guaranteed by BBVA in case
of lease assignments; (ii) the overall quality of the Properties;
(iii) the experience of the sponsor RREEF (part of the Deutsche Bank Group)
and its ability to execute the disposal plan; and (iv) the diversity
in terms of number of properties and location (main locations are Madrid
18.6%, Barcelona 5.0%, Bilbao
9.1%; Sevilla 1.7% and Valencia 1.6%).
Moody's notes that the A3 and Baa2 ratings are well below the current
Aa2 rating of the Tenant, which is mainly due to the following weaknesses
of the Loans (i) the lack of a tail period beyond the maturity date of
the Loans; (ii) a non-clean SPV Borrower structure; (iii)
the more limited transaction governance compared to traditional CMBS transactions;
(iv) the lack of a liquidity facility; (v) the refinancing risk of
the Senior Loan at the maturity date; and (vi) the property type
Due to the lack of a tail period and the expected size of the Senior Loan
at its maturity date, Moody's highlights the risk that the rating
of the Senior Loan could migrate significantly downwards towards the maturity
date if the real estate and lending markets in Spain would experience
severe stress. Furthermore, the ratings of the Senior and
Mezzanine Loans will be sensitive to (i) changes in the rating of BBVA;
(ii) changes in the ratings of any of the swap counterparties since the
swap agreements do not comply with Moody's de-linkage criteria;
and (iii) execution risk of the disposal plan.
Since the initial closing, the transaction performed inline with
Moody's expectations. As of the June 2010 IPD, the
reported DSCR for the Senior and two Loans together (based on the initial
transaction amounts) were 1.56x and 1.22x respectively.
The U/W LTVPV based on the balance of the two Loans is 126.9%
similar to initial closing date. Also, 95.2%
of the mortgages have been registered with the local land registers.
Moody's analysed and will monitor this transaction using the rating methodology
for EMEA CMBS transactions as described in the Rating Methodology report
"Update on Moody's Real Estate Analysis for CMBS Transactions in EMEA,"
June 2005 and "Moody's Updates on its Surveillance Approach for EMEA CMBS,"
published in March 2009 and "Framework for De-Linking Hedge Counterparty
Risks from Global Structured Finance Cashflow Transactions," May
2006. All can be found on www.moodys.com in the Rating
Methodologies sub-directory under the Research & Ratings tab.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website. In addition, Moody's publishes a weekly
summary of structured finance credit, ratings and methodologies,
available to all registered users of our website, at www.moodys.com/SFQuickCheck.
More information can be found in Moody's New Issue Report and Performance
Overviews for this transaction that are available on its website www.moodys.com
-- alternatively, please contact the Moody's client
service desk in London on 44(0) 20 7772 5454.
MD - EMEA Structured Fin
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Affirmed the Rating of EUR 1,251 million of Commercial Real Estate Loans Advanced to Tree Inversiones Inmobiliarias, S.A.
No Related Data.
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