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04 Feb 2011
GBP 437.5 million of UK CMBS affected
London, 04 February 2011 -- Moody's Investors Service has today affirmed the ratings of the following
classes of Notes issued by Triton (European Loan Conduit No. 26)
PLC (ELoC 26) (amounts reflect initial outstandings):
- GBP 337,500,000 Class A1, affirmed at Baa2
(sf); previously on 5 August 2009 downgraded to Baa2 (sf)
- GBP 100,000,000 Class A2, affirmed at Baa2
(sf); previously on 5 August 2009 downgraded to Baa2 (sf)
At the same time Moody's has affirmed the Aaa (sf) rating of the Class
Moody's only rates Class A1, Class A2 and Class X Notes (the "Notes").
The key parameters in Moody's analysis are the default probability of
the four securitised loans backing the Notes (both during their remaining
term and at maturity) as well as Moody's value assessment for the portfolio
of properties securing those loans. Moody's derives from those
parameters, a loss expectation for the securitised loan pool.
Based on the revised assessment of the parameters, the loss expectation
for the pool has slightly decreased compared to our previous assessment.
This was driven by a slight improvement in values of the underlying assets
backing the loans as well as by the expectation that the properties should
continue to generate sufficient cashflows to exceed each loan's interest
obligations, even in the event of a transfer to special servicing.
Both these factors have tended to decrease loss severity for each loan
analysed. However, Moody's believes that loan refinancing
conditions for commercial real estate lending are still difficult overall.
Therefore, we have assumed that the risk of a loan defaulting at
its maturity date has increased compared with our last review in 2009.
Overall, despite a small improvement in expected losses in the pool,
there may still be downward rating pressure under certain scenarios,
and consequently we have maintained the current ratings for ELoC 26 today.
The Class X Certificates represent rights to excess spread, prepayment
fees and other ancillary income. The rating of the Class X Certificates
addresses the likelihood of receipt of payment of such amounts but not
the amounts due. The risk profile of the Class X Certificates is
therefore different from the risk profile of the other classes of Notes
and as such, the rating of these securities will not be affected
in the same way as the other Notes to changes in the credit risk of the
The Moody's weighted average loan to value (LTV) ratio on the whole loans
is 111.4%. The largest loan in the pool representing
47.8% of the current pool balance is the Devonshire loan.
This loan which matures in October 2011, and has a Moody's
whole loan LTV ratio of 123.1%. The first loan to
refinance in July 2011 is the Sanctuary loan. The Sanctuary loan
is the third largest loan in the pool, representing 19.9%
of the securitised loan pool, with a Moody's whole loan LTV
ratio of 71.7%. The next two loans to refinance will
be the Access loan and the Nextra loan, representing 26.5%
and 5.9% of the securitised pool balance respectively,
with Moody's whole loan LTVs of 104.2% and 62.5%.
Both loans are scheduled to mature in 2013, although the Nextra
loan has a potential further three-year extension option.
As we expect limited recovery in commercial property values by the end
of 2013, some loans in the pool are expected to be highly leveraged
at their refinancing dates. Due to the high leverage ratios,
and lack of significant lending activity at the present time, we
are expecting a significant portion of the pool to default over the remaining
transaction term. In mitigation, the coverage of defaulted
loans over the next few years should improve post default, since
those loans will revert to a floating rate of interest after their maturity
date has passed.
The Baa2 (sf) ratings of the Class A1 and Class A2 Notes may still be
sensitive under certain circumstances. In particular, if
a significant portion of loan principal redemption / recovery proceeds
are not allocated sequentially, there could be further rating pressure
on the Notes. For the time being, it is our expectation that
no more than 25% of future principal proceeds will be allocated
according to existing modified pro-rata rules.
Moody's analysis reflects a forward-looking view of the likely
range of collateral performance over a medium-term horizon,
as illustrated by our "EMEA CMBS 2011 Central Scenario" published 2nd
Feb 2011. From time to time, we may, if warranted,
change those expectations. Performance that falls outside an acceptable
range of our key rating input parameters may indicate that the collateral's
credit quality is stronger or weaker than what we had anticipated for
today's affirmation. Despite this, deviation from the expected
range will not necessarily result in a rating action. There may
be mitigating or offsetting factors to a worsening in collateral performance,
such as increased subordination levels due to amortisation and/or loan
re- prepayments. The converse is true, better than
expected performance may be offset by a reduction in subordination or
by other factors.
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, which will remain constrained by strict underwriting
criteria and heavily skewed towards high quality assets, (ii) that
values will overall stabilise but with a strong differentiation between
prime and secondary properties, and (iii) that occupational markets
will remain under pressure in the short-term and will begin to
slowly recover in the medium-term in line with 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
As of the 26 October 2010 interest payment date (IPD), the transaction's
total pool balance was GBP 597.9 million, which compares
with GBP 601.2 at closing. This slight reduction was due
to a partial prepayment of the Devonshire loan. There were no other
prepayments in the pool since closing. The Devonshire loan is secured
by a portfolio mainly consisting of office properties in the City of London,
multi-let to 28 tenants but with a main tenant, AON accounting
for more than 42% of the total lettable area. The Devonshire
loan has an underwritten whole loan LTV of 117.8%.
The Sanctuary loan is secured by a single tenanted building located near
the Houses of Parliament in London, and is currently occupied by
the Secretary of State for the Environment on a lease expiring in 2017
with no breaks. Its whole loan underwritten LTV is 83.1%.
As of the last interest payment date, the Access loan has been on
the Servicer's watchlist owing to a breach of its forward-looking
1.25x ICR dividend trap breach in August 2010. The interest
cover ratio subsequently increased to exceed its dividend trap level by
the October 2010 IPD. There were no loans in special servicing
as of the date of this press release.
The principal methodologies used in rating and monitoring this transaction
were "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"
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 5th August 2009.
The last Performance Overview for this transaction was published on 22nd
December 2010. 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.
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Andrea M. Daniels
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Investors Service Ltd.
Moody's affirms ratings of CMBS Notes issued by Triton (European Loan Conduit No. 26) PLC
One Canada Square
London E14 5FA
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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