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Rating Action:

Moody's Affirms 3 Classes of EMEA CMBS Notes issued by Morpheus (European Loan Conduit No. 19) plc (ELoC 19)

26 Mar 2014

Approximately GBP96 Million of CMBS Affected

London, 26 March 2014 -- Moody's Investors Service (Moody's) has affirmed the ratings of three classes of notes issued by Morpheus (European Loan Conduit No. 19) plc (ELoC 19).

Moody's rating action is as follows:

....GBP37.82M B Notes, Affirmed Aa1 (sf); previously on Jul 5, 2007 Upgraded to Aa1 (sf)

....GBP33.46M C Notes, Affirmed A2 (sf); previously on Jul 5, 2007 Upgraded to A2 (sf)

....GBP24.73M D Notes, Affirmed Baa3 (sf); previously on Aug 18, 2004 Definitive Rating Assigned Baa3 (sf)

Moody's does not rate the Class E Notes.

RATINGS RATIONALE

Today's rating affirmation of the notes is mainly driven by (i) a significant increase in credit enhancement levels since closing as a result of loan paydowns; (ii) continued good loan performance with no delinquencies; and (iii) strong pool loan coverage ratios, with weighted average (WA) interest and debt service coverage ratios of 8.14x and 4.34x respectively.

As a result of the loan repayments, Class A Notes have been redeemed in May 2013 and Class B Notes now benefits from the fully sequential allocation of principal proceeds.

The transaction benefits from additional overcollateralisation as the current loan balance exceeds the note balance by GBP1.33 million. This is derived from the use of excess interest from the loans since closing to make partial repayments on the Class E Notes. However, the notes' weighted average interest rate has increased over time due to the significant repayment of the senior classes, creating negative excess spread and ongoing interest shortfalls on Classes D and E Notes. The current level of overcollateralisation as well as the subordination of Class E to Class D currently provide enough cushion to repay the shortfalls on Class D by its legal final maturity.

The servicing of the loans has been transferred to Mount Street Mortgage Servicing Limited from Morgan Stanley Mortgage Servicing Limited. Due to certain features of the transaction, in particular the possibility for the cash manager and the issuer to draw under the liquidity facility even in a servicer default scenario, this transfer does not have an impact on the current ratings.

Moody's affirmation reflects a base expected loss in the range of 0%-10% of the current balance, stable since last review. Moody's derives this loss expectation from the analysis of the default probability of the securitised loans (both during the term and at maturity) and its recovery expectation for the collateral.

A lack of detailed information on a loan-by-loan basis for this relatively granular portfolio and the long maturity of the transaction adds a level of uncertainty to default and value assumptions that is captured in the current level of the ratings.

Methodology Underlying the Rating Action:

The principal methodology used in this rating was Moody's Approach to Rating EMEA CMBS Transactions published in December 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Other factors used in this rating are described in European CMBS: 2014-16 Central Scenarios published in March 2014.

Factors that would lead to an upgrade or downgrade of the rating:

Main factors or circumstances that could lead to a downgrade of the ratings are (i) a decline in the property values backing the underlying loans, especially given the limited information at property level or (ii) an increase in default risk assessment, especially given the limited information at loan level.

Main factors or circumstances that could lead to an upgrade of the ratings are (i) an increase in the property values backing the underlying loans, (ii) repayment of loans with an assumed high refinancing risk or (iii) a decrease in default risk assessment.

MOODY'S PORTFOLIO ANALYSIS

As of the February 2014 IPD, the transaction balance has declined by 92% to GPB48.3 million from GPB581.9 million at closing in August 2004 due to the pay-off of 359 loans originally in the pool. The notes are currently secured by 60 first-ranking legal mortgages over 143 properties. Although the pool still benefits from a high level of granularity, it is significantly more concentrated than at closing due to loan repayments. The five largest loans represent approximately 44% of the total pool. There is some tenant concentration with the largest tenant and the largest five tenants contributing about 20% and 35% of the total rental income on a pool level, respectively. Since the last review ten loans have repaid. The pool is well diversified in terms of property type (27% retail, 22% office, 22% industrial, 17% residential and 12% mixed). In terms of geographic location the properties are located mainly in the London area (53%) and in the South East (12%). Moody's uses a variation of the Herfindahl Index, in which a higher number represents greater diversity, to measure the diversity of loan size. This pool has a Herf of 16.5, lower than at Moody's prior review.

Moody's current WA loan to value ratio (LTV) of 79% is based on a conservative property assessment taking into consideration that relatively limited property level information is available for this pool compared to other, less granular transaction within EMEA CMBS. Moody's WA pool level LTV compares to a current WA Underwriter (UW) LTV of 52%. However, except for very limited cases, it should be noted that the UW values have not been updated since closing in 2004, when 55% of pool balance had appraisal values dated between 1990 and 2002, which indicates some properties could have experienced substantial value appreciation prior to the most recent market downturn for secondary quality assets.

All loans are current. There are no loans in special servicing and only a limited number of loans on the servicer's watchlist, mainly due to upcoming loan maturity.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of this transaction in the past six months.

The analysis relies on a Monte Carlo simulation that generates a large number of collateral loss or cash flow scenarios, which on average meet key metrics Moody's determines based on its assessment of the collateral characteristics. Moody's then evaluates each simulated scenario using model that replicates the relevant structural features and payment allocation rules of the transaction, to derive losses or payments for each rated instrument. The average loss a rated instrument incurs in all of the simulated collateral loss or cash flow scenarios, which Moody's weights based on its assumptions about the likelihood of events in such scenarios actually occurring, results in the expected loss of the rated instrument.

As the section on loss and cash flow analysis describes, Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Emmanuel Savoye
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Oliver Moldenhauer
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Affirms 3 Classes of EMEA CMBS Notes issued by Morpheus (European Loan Conduit No. 19) plc (ELoC 19)
No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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