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Announcement:

Moody's: Announcement regarding BMF transaction amendments

07 Sep 2010

London, 07 September 2010 -- The Trustee and Issuer for each of the transactions below has informed Moody's Investors Service, of certain proposed amendments which are to be made to the transaction documents to correct a drafting error:

- Business Mortgage Finance No. 1 plc ("BMF1")

- Business Mortgage Finance No. 2 plc ("BMF2")

- Business Mortgage Finance No. 3 plc ("BMF3")

- Business Mortgage Finance No. 4 plc ("BMF4")

- Business Mortgage Finance No. 5 plc ("BMF5")

- Business Mortgage Finance No. 6 plc ("BMF6")

- Business Mortgage Finance No. 7 plc ("BMF7")

All classes of notes issued by BMF1, BMF2, BMF3, BMF4, BMF5, BMF6 and BMF7 (the "BMF transactions") except the MERC notes of each transaction (the "Notes") will be subject to the amendments. All the Notes of the BMF transactions mentioned in this press release are structured finance products, and bear an (sf) indicator.

Each class of Notes in the BMF transactions features a regular coupon which is paid as long as the respective class of Notes is outstanding, and a step-up coupon which becomes additionally payable from the step-up date if the Notes are not called before then. The BMF transactions also feature a detachable class A coupon, paid pari-passu to regular class A coupon payments as long as the class A of any BMF transaction is outstanding.

In each BMF Issuer's pre-enforcement and post-enforcement waterfall, the step-up coupon is paid to the extent that there is sufficient available excess cashflow, after paying senior ranking claims. In the pre-enforcement waterfall of each BMF transaction, the interest revenue received from the underlying portfolio, after hedging payments, is applied towards (inter alia) providing for (i) issuer expenses, (ii) payments of the regular coupon for all classes of Notes, (iii) reduction of the principal deficiency ledger balances of all classes of Notes and (iv) replenishing the cash reserve fund to its target level; with amounts remaining after that, being "excess spread". Moody's ratings do not address payment of the step-up coupon out of excess spread. The liquidity facility and the cash reserves are also not available to pay the step-up coupons.

However, as drafted in all seven transactions, the step-up coupon of the most senior class of Notes outstanding at any time is not deferrable. Therefore, in situations where the step-up date has passed, and where there is insufficient excess spread to pay the most senior class outstanding's step-up coupon in full, a Note event of default would be triggered. We understand that the issuers and the trustee consider that this is a drafting error and hence they intend to amend the documents of all the affected BMF transactions.

Out of the seven BMF transactions, only BMF 1 has passed its step-up date - in April 2009 - with the remaining step-up dates ranging from November 2011 (BMF2) to August 2014 (BMF6). To date, BMF1 has been able to meet its step-up coupons through excess spread. The next interest payment date for BMF1 is in mid October 2010. As per the last reporting date for the BMF transactions, the reserve funds of BMF 3 through 7 were below their target levels, meaning that those transactions would not have sufficient excess spread to pay any step up coupons were the step-up date to occur today.

A Note event of default could lead to a Note enforcement notice being served, which in the BMF transactions, can take place relatively easily given that these transactions have only a twenty-five per cent voting threshold for the most senior class of Noteholders to instruct serving such a notice. Once a note enforcement notice has been served, it would be a termination event under the swaps, and in that case, the swap termination payments would generally rank senior or pari passu to Noteholders' interests. Depending on the size and type of swap termination payment, it would result in negative credit consequences for all Noteholders, although the largest impact would probably be felt mainly by junior Noteholders.

Moody's understands that the BMF transactions will be amended such that non-payment of the step-up amounts will no longer result in a Note event of default. Certain ancillary changes would also have to be made to the terms and conditions of the Notes for each of the BMF transactions to make the overall drafting of the Notes' terms and conditions consistent throughout. Such amendments, if they go ahead, would bring the transaction documents in line with Moody's original understanding and with the current rating assessment for each BMF transaction. Moody's expectation is that the modifications will be expedited, to take place within a short timeframe, and the progress of the changes will be monitored.

The principal methodologies used in rating and monitoring the above referenced transactions are "Update on Moody's Real Estate Analysis for CMBS Transaction in EMEA" June 2005 and "Moody's Updates on its Surveillance Approach for EMEA CMBS" March 2009, which can be found at 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.

For updated monitoring information, please contact monitor.cmbs@moodys.com. To obtain a copy of Moody's New Issue Report on these transactions, please visit Moody's website at www.moodys.com or contact our Client Service Desk in London (+44-20-7772 5454). Further information on Moody's analysis of these transactions is available on www.moodys.com. 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.

London
Lisa Macedo
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Frankfurt am Main
Marie-Jeanne Kerschkamp
MD - EMEA Structured Fin
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom

Moody's: Announcement regarding BMF transaction amendments
No Related Data.
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