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Global Credit Research - 23 Feb 2011
GBP 194 Million of CMBS affected
London, 23 February 2011 -- Moody's Investors Service has today affirmed the rating of the following
class of Notes issued by Perseus (European Loan Conduit No. 22)
plc (ELoC 22) (amounts reflect initial outstandings):
GBP194M Class A2 Notes, Affirmed at Aa3 (sf); previously on
Sep 22, 2009 Downgraded to Aa3 (sf)
Moody's does not rate the Class A3, Class B, Class C and Class
D Notes issued by European Loan Conduit No. 22 p.l.c.
The rating of the Class A1 Notes was withdrawn in October 2010 upon full
repayment. Today's rating action takes Moody's updated central
scenarios into account, as described in Moody's Special Report "EMEA
CMBS: 2011 Central Scenarios".
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 remaining pool, which now only consists of three
loans has increased significantly since the last review in September 2009.
However, this is mitigated for the Class A2 Notes by the good credit
enhancement level, low note-to-value (NTV) level,
and the sequential payment allocation of all further principal receipts.
The overall default probability of the remaining underlying loans as assessed
by Moody's has increased since the last review due to a re-assessment
of the refinancing risk. Moody's weighted average whole loan
to value (LTV) ratio is considerable at 147%. The Major
Belle Loan (17.5% of current pool), which exhibits
a Moody's whole loan LTV of 161%, is currently in special
servicing due to failure to fully refinance at maturity in October 2010.
The remaining two loans, Yate (50% of current pool) and Mapley
Columbus (32.5% of current pool), which show Moody's
whole loan LTVs of 155% and 126% respectively, are
due to be repaid in July 2012. As Moody's expects limited
increase in commercial property values in the next two years, combined
with the high leverage on the loans at their maturity dates in July 2012,
there is a high likelihood of both these loans defaulting at loan maturity.
If these loans default at maturity, they will need to be worked-out
during the two-year tail period of the transaction given the legal
final maturity date of the notes is in July 2014. There is currently
limited visibility on the actions that will be taken by the Servicer/Special
Servicer upon potential default of the loans at maturity. In its
rating of the Class A2 Notes, Moody's took into account the
probability that the properties could be sold at distressed prices with
the aim of recovering the principal before the legal final maturity of
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 realised 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.
MOODY'S PORTFOLIO ANALYSIS
Perseus (European Loan Conduit No. 22) plc represents the securitisation
of initially five commercial mortgage loans originated by Morgan Stanley
Bank International Limited that were secured by first ranking mortgages
on 371 mainly office and retail properties located across the UK.
As of January 2011, the transacton's total pool balance was
GBP 128.2 million, down by 75% since closing.
Since our last review of the transaction in September 2009, one
loan, the Major Belle Loan has been transferred into special servicing
due to failure to fully refinance at loan maturity in October 2010.
The Columbus Court Loan (13.8% of original pool balance)
initially defaulted at its maturity date in October 2010, but was
subsequently repaid in January 2011 following the loan's transfer
into special servicing. Similarly, the Ladysmith Loan (5.6%
of original pool balance) had defaulted at its maturity in July 2010,
but was subsequently fully repaid in October 2010 while in special servicing.
Furthermore, there was a considerable prepayment of the Mapeley
Columbus Loan (56.2% of original pool balance) in October
2010 after property disposals. As the transaction's sequential
payment trigger was breached in October 2010, all loan repayments
and prepayments have been allocated sequentially to the Notes resulting
in the full repayment of the Class A1 Notes and a substantial pay down
of the Class A2 Notes.
Currently, the largest loan in the pool is the Yate loan (50%
of pool balance). The loan is secured by a secondary shopping centre
located in Yate. The reported vacancy rate as per the January 2011
IPD is approximately 13.3%. The loan continues to
be in breach of its LTV covenant. The current reported LTV on this
loan is 82.5% compared to the current Moody's LTV of 155%.
Moody's property value estimate considers the (i) secondary quality of
the building and (ii) some potential rental income deterioration because
of expiring leases. In Moody's assessment, the refinancing
risk for the loan, which matures in July 2012 has increased significantly
since Moody's last review.
The second largest loan in the pool is the Mapeley loan (32.5%
of pool balance). The loan is secured by 171 office and retail
properties located throughout the UK. The properties are primarily
let to Santander (Aa3) contributing 84% to the current total income.
The reported vacancy rate as per the January 2011 IPD is approximately
21.3%. The current UW LTV of this loan is 56%
compared to the current Moody's LTV of 126%. The refinancing
risk for the loan, which matures in July 2012, has increased
significantly since Moody's last review.
As mentioned, the Major Belle Loan (17.5% of pool
balance) is currently in special servicing due to failure to fully repay
at its loan maturity date in October 2010. As per the latest available
special servicing notice on this loan the Special Servicer is in discussions
with the borrower regarding a potential restructuring of the loan.
The Special Servicer is currently reviewing the terms of this proposal
as well as alternative options. The current UW whole loan LTV of
this loan is 68% compared to the current Moody's whole loan
LTV of 160%. Moody's property value estimate considers the
(i) secondary quality of the building and (ii) some potential rental income
deterioration because of expiring leases. Moody's expects
very high losses to be realized on this loan.
Portfolio Loss Exposure: Moody's expects a very high amount of losses
on the securitised portfolio, stemming mainly from the performance
and the refinancing profile of the securitised portfolio. Given
the default risk profile and the anticipated work-out strategy
for defaulted and potentially defaulting loans, these expected losses
are likely to crystallise only towards the end of the transaction term.
The principal methodologies used in this rating were "Update on Moody's
Real Estate Analysis for CMBS Transactions in EMEA" published in June
2005, and "Moody's Updates on its Surveillance Approach for EMEA
CMBS" published in March 2009.
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.
The updated assessment is a result of Moody's on-going surveillance
of commercial mortgage backed securities (CMBS) transactions. Moody's
prior review is summarised in a Press Release dated 22 September 2009.
The last Performance Overview for this transaction was published on 8
For updated monitoring information, please contact email@example.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).
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Frankfurt am Main
Vice President - Senior Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
Moody's affirms rating of Class A2 CMBS Notes issued by Perseus (European Loan Conduit No. 22) plc (ELoC 22)
One Canada Square
London E14 5FA
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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