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Announcement:

Moody's affirms rating of Class A CMBS Notes issued by Deco 12 - UK 4 p.l.c.

04 Apr 2011

GBP 475 million of CMBS affected

London, 04 April 2011 -- Moody's Investors Service has today affirmed the rating of the following class of Notes issued by Deco 12 - UK 4 p.l.c. (amounts reflect initial outstandings):

GBP 475,000,000 Class A-1 Notes, Affirmed at Aa2 (sf), previously on 17 Jul 2009 Downgraded to Aa2 (sf)

Moody's does not rate the Class A-2, Class B, Class C, Class D, Class E and Class F Notes issued by Deco 12 - UK 4 p.l.c. Today's rating action takes Moody's updated central scenarios into account, as described in Moody's Special Report "EMEA CMBS: 2011 Central Scenarios".

RATINGS RATIONALE

The key parameters in our analysis are the default probability of the securitised loans (both during the term and at maturity) as well as our value assessment for the properties securing these loans. We derive from those parameters a loss expectation for the securitised pool.

Based on Moody's revised assessment of these parameters, the loss expectation for the pool, which consists of ten loans (unchanged since closing) has increased modestly since our last review in July 2009. However, this is mitigated for the Class A-1 Notes by the good credit enhancement level and low note-to-value (NTV) level.

The main driver for the increased expected losses is the higher refinancing risk now assumed for the loans. In the period 2011 and 2012, five loans totalling GBP231.9 million (37% of the securitised pool) will need to refinance. Although in the current review the refinancing risk of second largest loan (Merry Hill) contributing 34% of the pool was less affected, the eight smallest loans were most affected. Commercial real estate lending is still severely constrained in the UK, and Moody's expects that lending markets will only see gradual improvement for the prime sector, while the availability of financing for secondary property will not improve before 2012/13.

Moody's updated its value assessment for each of the properties, taking into account recent rent roll information and letting activity in the portfolio. Moody's weighted average whole loan-to-value (LTV) ratio is considerable at 90% with the LTVs of the eight smallest loans ranging between 111% and 166%. This compares to an underwritten LTV of 63% on a whole loan basis, albeit most of the underwriter valuations have not been updated since the loans were securitised. The Tesco loan and Merry Hill loan are the two largest loans (together 90% of the pool) and show a Moody's whole loan LTV of 94% and 70% respectively. The Tesco loan, which matures in January 2017, benefits from strong occupational leases with Tesco (A3, negative outlook). The lease agreements with Tesco will expire in December 2026. In Moody's view, the impact following last year's inclusion of lease breaks in 2016 is limited in terms of refinancing risk as the borrower agreed to repay the loan in full prior to the exercise of the breaks. The Merry Hill loan which will mature in January 2012 benefitted from a substantial partial prepayment of GBP45 million in January 2010. The Quattro loan (1.3% of current pool), which exhibits a Moody's whole loan LTV of 166%, is currently in special servicing due to a failure to repay at its maturity date in October 2009.

Moody's analysis reflects a forward-looking view of the likely range of collateral performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside an acceptable range of the key parameters may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated during current review. Even so, deviation from the expected range will not necessarily result in a rating action. There may be mitigating or offsetting factors to an improvement or decline in collateral performance, such as increased subordination levels due to amortization and loan re- prepayments or a decline in subordination due to realized losses.

Primary sources of assumption uncertainty are the current stressed macro-economic environment and continued weakness in the occupational and lending markets. Moody's anticipates (i) delayed recovery in the lending market persisting through 2012, while remaining subject to strict underwriting criteria and heavily dependent on the underlying property quality, (ii) values will overall stabilise but with a strong differentiation between prime and secondary properties, and (iii) occupational markets will remain under pressure in the short term and will only slowly recover in the medium term in line with the anticipated economic recovery. Overall, Moody's central global scenario remains 'hooked-shaped' for 2011; we expect sluggish recovery in most of the world's largest economies, returning to trend growth rate with elevated fiscal deficits and persistent unemployment levels.

As of the January 2011 interest payment date (IPD), the transaction's total pool balance was GBP626 million, down 7% since closing. The balance reduced as the borrower of the Merry Hill loan made a partial prepayment of GBP45 million in January 2010. As the proceeds were allocated fully sequentially, the Class A-1 credit enhancement increased to 32% from 29% at closing. As of last IPD, two loans are on the servicer's watchlist: (i) the Chesterton Commercial loan (1% of the pool) due to projected reductions in future rental income; and (ii) the Quattro loan which is also in special servicing as a result of failure to repay at its maturity date in October 2009.

RATING METHODOLOGY

The principal methodologies used in this rating was "Update on Moody's Real Estate Analysis for CMBS Transaction in EMEA", published in June 2005 and "Moody's Updates on its Surveillance Approach for EMEA CMBS", published in March 2009.

The updated assessment is a result of Moody's on-going surveillance of commercial mortgage backed securities (CMBS) transactions. The last Performance Overview for this transaction was published on 21 March 2011.

For updated monitoring information, please contact monitor.cmbs@moodys.com. To obtain a copy of Moody's Pre Sale Report on this transaction, please visit Moody's website at www.moodys.com or contact our Client Service Desk in London (+44-20-7772 5454).

London
Jeroen Heijdeman
Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Christophe de Noaillat
Senior Vice President
Structured Finance Group
Moody's Investors Service Ltd.
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
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms rating of Class A CMBS Notes issued by Deco 12 - UK 4 p.l.c.
No Related Data.
© 2018 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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