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Announcement:

Moody's affirms the ratings of EMEA CMBS Notes issued by Morpheus (European Loan Conduit No. 19) plc (Eloc 19)

08 Jun 2012

Approximately GBP 54 million of CMBS affected

Frankfurt am Main, June 08, 2012 -- Moody's Investors Service has today affirmed the ratings of the following classes of Notes issued by Morpheus (European Loan Conduit No. 19) plc (Eloc 19):

....GBP465.51M Class A Notes, Affirmed at Aaa (sf); previously on Aug 17, 2004 Definitive Rating Assigned Aaa (sf)

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

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

....GBP24.73M Class D Notes, Affirmed at Baa3 (sf); previously on Aug 17, 2004 Definitive Rating Assigned Baa3 (sf)

Moody's does not rate the Class E Notes issued by Morpheus (European Loan Conduit No. 19) plc.

RATINGS RATIONALE

Today's rating affirmation of the Notes is mainly driven by (i) significant increase in credit enhancement levels as a result of loan paydowns; (ii) continued good loan performances with a low pool delinquency rate of 1.9%; and (iii) strong pool loan coverage ratios, with a weighted average (WA) interest and debt service coverage ratios of 6.04X and 3.57X respectively.

The key parameters in Moody's analysis are the default probability of the securitised loans (both during the term and at maturity) as well as Moody's value assessment for the properties securing these loans. Moody's derives 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 consists of 84 loans has decreased since our last review 12 months ago. Nevertheless, a lack of detailed information on a loan by loan basis for this relatively granular portfolio adds a level of uncertainty to default and value assumptions that is captured in the current level of the ratings.

Since the February 2011 IPD, 15 loans (15% of pool balance) repaid in full. Currently, the largest loan contributes to about 21% of the current pool balance, while the top five loans contribute to about 44% of the current pool. Loan concentration has increased since closing of the transaction in August 2004, when there were 419 loans in the pool. Additionally, there is some tenant concentration in that the largest tenant and the largest five tenants contribute to about 19% and 33% of the total rental income on a pool level, respectively. As of February 2012, the pool had an average 12% vacancy rate, with vacancy levels ranging from 0% to 100%. Moody's current WA loan to value ratio (LTV) of 75% is based on a conservative property assessment taking into consideration that relatively little property level information is available for this pool compared to other, less granular transaction within EMEA CMBS. Moody's WA pool level LTV of 75% compares to a current WA Underwriter (U/W) LTV of 56%. However, 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.

In general, Moody's analysis reflects a forward-looking view of the likely range of commercial real estate 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 such as property value or loan refinancing probability for instance, may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated when the related securities ratings were issued. Even so, a deviation from the expected range will not necessarily result in a rating action nor does performance within expectations preclude such actions. There may be mitigating or offsetting factors to an improvement or decline in collateral performance, such as increased subordination levels due to amortisation 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 2013, while remaining subject to strict underwriting criteria and heavily dependent on the underlying property quality, (ii) strong differentiation between prime and secondary properties, with further value declines expected for non-prime 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 anticipated economic recovery. Overall, Moody's central global macroeconomic scenario is for a material slowdown in growth in 2012 for most of the world's largest economies fueled by fiscal consolidation efforts, household and banking sector deleveraging and persistently high unemployment levels. We expect a mild recession in the Euro area.

As the Euro area crisis continues, the rating of the structured finance notes remain exposed to the uncertainties of credit conditions in the general economy. The deteriorating creditworthiness of euro area sovereigns as well as the weakening credit profile of the global banking sector could negatively impact the ratings of the notes. For more information please refer to the Rating Implementation Guidance published on 13 February 2012 "How Sovereign Credit Quality May Affect Other Ratings". Please also refer to the recent rating actions on banks published on 15 February 2012, (please see "Moody's Reviews Ratings for European Banks" and "Moody's Reviews Ratings for Banks and Securities Firms with Global Capital Markets Operations" for more information).

MOODY'S PORTFOLIO ANALYSIS

As per closing, the pool contained 419 loans, all secured by first legal mortgages on approximately 850 commercial properties. All the properties were located in England, Wales and Scotland. The pool was highly diversified in terms of inter alia borrower concentration and property type. The top three borrowers represented approximately 16% of the pool. The largest concentration of property type was in the office sector, at 39% of the total pool. At closing, most of the borrowers were not structured as special purpose vehicles (SPVs). No loan is subject to an A/B split.

Since closing, there have been significant loan repayments, reducing the total loan balance by 88.5% to GBP 66.8 million per February 2012 IPD from GBP 581.9 million at closing. 84 loans secured by 181 properties remain in the pool. The pool composition is not distributed equally. The 30 largest loans contribute to 89% of the pool, while the 30 smallest loans contribute to only 3.7% of the pool. There is some tenant concentration in that the largest tenant and the largest five tenants contributes to about 19% and 33% of the total rental income on a pool level. Based on UW market values, office and retail properties dominate with 30% and 25% of value, respectively. Most properties are located in London (about 59% of the market value). On a pool level, about 12% of the total area is currently vacant. The pool currently reports a WA ICR and DSCR of 6.04X and 3.57X, respectively.

Approximately 53% of the current pool balance is subject to maturity before 2016, while 92% matures before 2023. The transaction's legal final maturity date of the notes is in 2029. The largest loan (21%) is due in 2015. Loan prepayment and bullet repayment proceeds are allocated modified pro-rata to the Notes (33% sequentially, 67% pro-rata). Scheduled amortisation proceds are allocated sequentially. The transaction will switch to a fully sequential paydown structure once less than 10% of the original pool balance remains. The current pool balance represents about 11% of the original pool balance. Sequential allocation of scheduled amortisation will increase the credit enhancement levels over time.

The transaction benefits from additional overcollateralization as the current loan balance exceeds the Note balance by GBP 1.4 million. This is derived from the use of excess interest from the loans to make partial repayments on the Class E Notes.

As of the February 2012 interest payment date ("IPD"), two loans (combined 1.9% of the current pool) were delinquent and in special servicing due to failure to repay at maturity. The properties backing both loans reported a 100% and a 38% vacancy rate, respectively. Four loans including the two delinquent loans (combined 2.8% of the current pool) are on the servicer's watchlist due to the failure to repay at maturity, approaching loan maturity date and tenant concentration.

The largest loan (about 13 million outstanding loan balance; 21% of the current pool) is secured by three properties in London. The Moody's LTV of 82% compares to the U/W LTV of 62% and takes into consideration the current vacancy rate of about 17%.

The principal methodology used in this rating was Moody's Approach to Real Estate Analysis for CMBS in EMEA: Portfolio Analysis (MoRE Portfolio) published in April 2006. 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: 2012 Central Scenarios published in February 2012.

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 2 April 2012.

In rating this transaction, Moody's used both MoRE Portfolio and MoRE Cash Flow to model the cash-flows and determine the loss for each tranche. MoRE Portfolio evaluates a loss distribution by simulating the defaults and recoveries of the underlying portfolio of loans using a Monte Carlo simulation. This portfolio loss distribution, in conjunction with the loss timing calculated in MoRE Portfolio is then used in MoRE Cash Flow, where for each loss scenario on the assets, the corresponding loss for each class of notes is calculated taking into account the structural features of the notes. As such, Moody's analysis encompasses the assessment of stressed scenarios.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Stephan Ebe
Associate Analyst
Structured Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Andrea Daniels
Senior Vice President
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms the ratings 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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All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

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