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Rating Action:

Moody's assigns Definitive Ratings to two Commercial Real Estate Loans in Conjunction with a Sale-and-Lease Back Transaction of BBVA

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 outlook).

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 concentration.

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.

London
Daniel Kolter
Managing Director
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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

Moody's assigns Definitive Ratings to two Commercial Real Estate Loans in Conjunction with a Sale-and-Lease Back Transaction of BBVA
No Related Data.
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