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24 Sep 2009
Approximately EUR 1,009 million of Commercial Real Estate Loans Rated.
London, 24 September 2009 -- Moody's Investors Service has assigned the following definitive ratings
to two commercial real estate loans advanced to Tree Inversiones Inmobiliarias,
S.A. (the "Borrower") of:
....EUR 917.5 million Senior Loan maturing
in September 2017, Assigned A3
....EUR 91.5 million Mezzanine Loan
maturing in September 2017, Assigned Baa2
The ratings of the two commercial real estate loans (the "Loans")
maturing in 2017 are provided in respect of the debt financing of a sale-and-lease
back transaction comprising 944 bank branches and 3 office buildings located
throughout Spain (the "Properties"). The Properties
are currently occupied by Banco Bilbao Vizcaya Argentaria, S.A.
("BBVA" or "Tenant"), (Aa2, negative
The ratings of the Loans are based upon (i) Moody's assessment of the
real estate quality and characteristics of the underlying Properties;
(ii) the loan-to-value ratio over the term of the Loans
and at the loan maturity date taking into account the sponsor's
disposal plan; (iii) the debt service coverage over the term of the
Loans; (iv) an analysis of the loan, intercreditor and security
agreements backing the Loans; (v) the paydown structure between Senior
Loan and Mezzanine Loan, which are cross defaulted and cross collateralised;
(vi) an analysis of the Borrower structure, including its flexibility
to substitute properties over time; (vii) Borrower-level inflation
rate and interest rate hedging provided by Deutsche Bank AG, London
Branch (Aa1, P-1), ING Belgium SA/NV (Aa3, P-1),
Barclays Bank PLC (Aa3, P-1) and Caja de Ahorros y Pensiones
de Barcelona ("La Caixa") (Aa2, P-1); and
(viii) the other legal and structural features of the Loans.
The Loans will partially finance the acquisition of the Properties and
will be secured by way of first and second ranking legal mortgages.
The filing of the mortgages will happen within 30 days for the office
buildings and 60 days for the bank branches from the financing date and
the registrations are expected within the following 12 months.
In addition, a share pledge and lease assignment form part of the
security package. The triple net leases with BBVA as initial tenant
have a 30 year term for the bank branches and a 20 year term for the office
buildings and in both cases are starting from the financing date.
Furthermore, BBVA is providing a backstop guarantee of the Tenant's
obligations, in particular in case of lease assignment.
The rental payments due from the Tenant will be adjusted annually based
on the European inflation index ("HCIP") and a multiplier
of 1.85x (until 2017), subject to a floor of 2.5%
in the first three years from the financing date. In order to convert
these variable cashflows received from the Tenant into fixed-uplift
cashflows, the Borrower has entered into inflation swaps with Deutsche
Bank AG, London Branch, ING Belgium SA/NV, Barclays
Bank PLC and La Caixa.
Before the maturity date in September 2017, the balances of the
Loans will reduce by way of scheduled amortisation. The Mezzanine
Loan is expected to amortise in full by September 2017, whereas
the Senior Loan will amortise more slowly, having a larger balloon
payment at the maturity date, and it is expected to pay down mainly
through prepayments and disposals. Disposal proceeds will be subject
to a release premium of 122.5% to be used in amortising
the Senior Loan, and disposals are not subject to any limitations.
Moody's current market value for the Properties is EUR 1,215
million resulting in a LTV of 75.5% based on the day-1
Senior Loan balance and 83.0% on the total balance of the
two Loans. This compares to an underwritten market value of EUR
1.525 million resulting in a LTV of 60.2% based on
the day-1 Senior Loan balance and 66.2% on the total
balance of the Loans. The Moody's market value is driven
by the lease profile with BBVA as strong covenant. On a VPV basis,
Moody's value is EUR 679 million compared to the underwritten VPV
of EUR 795 million, resulting in a Moody's LTVPV of 149%
and a underwritten LTVPV of 127% on total balance day-1.
As a result, the haircuts to the underwritten market value and VPV
are approximately 20% and 15%, respectively.
This is mainly driven by an adjustment to the ERV's, void
periods and cap rates used in the underwritten valuation. At loan
maturity, Moody's assumes that the LTV will range between
55% to 65%, whereby the reduced LTV will be mainly
the result of increased rental cashflows due to indexation, scheduled
amortisation of the Loans, and importantly by principal prepayments
plus release premia stemming from property disposals.
The key strengths of the Loans include; (i) the long occupational
triple net leases with BBVA subject to rental uplifts based on the European
inflation index, with such obligations guaranteed by BBVA in case
of lease assignments; (ii) the overall quality of the Properties;
(iii) the experience of the sponsor RREEF (part of the Deutsche Bank Group)
and its ability to execute the disposal plan; and (iv) the diversity
in terms of number of properties and location (main locations are Madrid
17.7%, Barcelona 4.0%, Bilbao
2.4% and Valencia 2.3%).
Moody's notes that the A3 and Baa2 ratings are well below the current
Aa2 rating of the Tenant, which is mainly due to the following weaknesses
of the Loans (i) the lack of a tail period beyond the maturity date of
the Loans; (ii) a non-clean SPV Borrower structure; (iii)
the more limited transaction governance compared to traditional CMBS transactions;
(iv) the lack of a liquidity facility; (v) the refinancing risk of
the Senior Loan at the maturity date; and (vi) the property type
Due to the lack of a tail period and the expected size of the Senior Loan
at its maturity date, Moody's highlights the risk that the
rating of the Senior Loan could migrate significantly downwards towards
the maturity date if the real estate and lending markets in Spain would
experience severe stress. Furthermore, the ratings of the
Senior and Mezzanine Loans will be sensitive to (i) changes in the rating
of BBVA; (ii) changes in the ratings of any of the swap counterparties
since the swap agreements do not comply with Moody's de-linkage
criteria; and (iii) execution risk of the disposal plan.
Moody's analysed and will monitor this transaction using the rating methodology
for EMEA CMBS transactions as described in the Rating Methodology report
"Update on Moody's Real Estate Analysis for CMBS Transactions in EMEA,"
June 2005 and "Moody's Updates on its Surveillance Approach for EMEA CMBS,"
published in March 2009 and "Framework for De-Linking Hedge Counterparty
Risks from Global Structured Finance Cashflow Transactions," May
2006. All can be found on 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. 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.
More information can be found in Moody's New Issue Report for this transaction
that will be available in due course on its website www.moodys.com
-- alternatively, please contact the Moody's client
service desk in London on 44(0) 20 7772 5454.
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns Definitive Ratings to two Commercial Real Estate Loans in Conjunction with a Sale-and-Lease Back Transaction of BBVA
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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