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22 Aug 2012
London, 22 August 2012 -- Following a review of the transaction, Moody's Investors Service
has concluded that the pool's performance is in line with expectations.
Overall, Moody's expected loss remains at a level where the
current credit enhancement levels of 80% for the Class A Notes
currently rated Aaa (sf) and 28% for the Class A2 Notes currently
rated A2 (sf), respectively, provide sufficient protection
to maintain the current ratings. The Class A1 Notes will continue
to benefit from payoffs due to the transaction now in sequential payment
Moody's does not rate the Class B, C, D, E, F,
G, H, J and X Notes issued by DECO 9 - Pan Europe 3
Based on its reassessment of the underlying property values, the
weighted average (WA) Moody's loan-to-value (LTV) ratio
on the senior loan is 100.3% and on a whole loan basis 107.0%.
This compares with our prior review's securitised WA LTV of 88%.
Moody's notes that the transaction is heavily weighted towards two loans
that represent approximately 72% of the outstanding pool balance,
the Treveria I Loan (40.3% of the current pool) and the
Dresdner Office Loan (31.8% of the current pool).
While leverage is largely unchanged for the Dresdner Office Loan,
the main driver of the overall increase is Moody's revaluation of
the transaction's largest loan, the Treveria I Loan,
with a Moody's LTV greater than 140% on the senior portion.
Asset disposals and repayments have improved the rated classes'
credit enhancement levels and have offset Moody's increased loss expectation
for the pool since its prior review with 29% of the pool balance
having paid down. Regarding principal allocation, the sequential
payment trigger in the transaction has been breached and all principal
proceeds are being allocated sequentially to the notes. Subordination
has increased on Moody's rated classes, most significantly benefitting
the Class A1, where credit enhancement is currently 80%.
Going forward, the sequential paydown will continue to primarily
benefit this most senior outstanding class.
The pool is exposed to significant refinancing risk as the entire pool
matures by 2014. This risk results from (i) significantly lower
values for non-prime properties, which are not expected to
recover over the short term, (ii) the dormant refinancing market,
especially for highly leveraged loans, and (iii) the uncertainty
with respect to the path and timing for a recovery of the lending market.
With ongoing market and economic uncertainty, the servicer will
utilise the structure's three-year tail period (legal final
maturity in July 2017) to work-out the loans and maximise recoveries.
As a caveat, the Treveria I Loan, being a 50% syndication,
is included in the EuroProp (EMC) S.A. (Compartment 1) CMBS
with a legal final maturity of August 2013. Significant execution
risk exists as the servicer must successfully dispose of the properties
within one year given the current market environment.
Moody's anticipates two loans that have either matured or will mature
soon to repay in the near future, bringing the pool to three loans.
The Coop Fishman Loan, currently representing 4.5%
of the pool, has been extended one quarter to October 2012 after
the borrower provided the Servicer with satisfactory proof for refinancing
at the October IPD. The other loan, the Göttingen Loan
(4.0% of the current pool), transferred to Special
Servicing after failing to repay on its 20 April 2012 maturity.
The most recent Special Servicer comments indicate that the borrower is
in negotiations with a prospective purchaser to sell the property and
that the net proceeds from the sale should be sufficient to repay the
loan in full.
As a result of both the likelihood of higher than expected losses on the
pool and the transaction's sequential payment structure, the rating
on the Class A2 Notes is more sensitive should loan performance deteriorate
beyond expectation. The ratings of the Classes of Notes are most
sensitive to both i) the work-out and disposition strategy for
the Treveria I Loan (with the other syndicated piece having a 4-year
shorter tail period) and (ii) significant value volatility in the Treveria
DECO 9 - Pan Europe 3 p.l.c. closed in August
2006 and represents the securitisation of initially eleven commercial
mortgage loans originated by Deutsche Bank AG, London Branch that
were secured by mainly first ranking mortgages on 500 retail, office,
commercial and multi-family properties located in Germany (90.8%)
and Switzerland (9.2%). Currently, five loans
remain in the pool and the loans are secured by first-ranking legal
mortgages over 303 commercial properties. As of the July 2012 July
interest payment date (IPD), the total principal balance outstanding
of the whole loan is EUR1.05 billion. Of this amount,
the senior loan portion equals EUR1.03 billion (EUR597.7
million securitised in this transaction).
Since Moody's prior press release, three additional loans
have repaid, reducing the pool balance by 29%. Most
recently, the Ascom loan repaid this quarter, with proceeds
of EUR43 million applied sequentially to the A1 Class. As of the
July 2012 IPD, four loans (80.6% of the pool) are
on the servicer's watchlist and two loans (44.2% of the
pool) are also in special servicing. The largest specially serviced
loan, the Treveria I Loan (40.3% of the pool) is discussed
The largest loan is the Treveria I Loan (40.3% of the current
pool) which is a 50% syndication of a EUR481 million outstanding
senior loan. It is secured by a portfolio of 53 primarily retail
properties located across Germany in medium sized towns and suburban locations
of major cities. Despite a diverse tenant base (most recently 392
tenants), vacancy has increased significantly since securitisation
to 23.5%from 4.4%. Rollover risk remains
going forward with a Weighted Average Lease Term (WALT) of slightly more
than 4 years. The loan transferred to Special Servicing in July
2010 due to the opening of insolvency and enforcement proceedings and
matured in January 2011. Consequently, the loan is currently
unhedged and paying floating rate of interest that is producing a strong
reported current interest coverage ratio ("ICR") of 3.32x on the
whole loan. Despite the original strategy for a portfolio sale,
the Special Servicer is now actively pursuing an orderly single asset
disposal program. Only seven assets have sold to date including
the sale of one Frankfurt asset whose proceeds were applied in the most
current IPD. The portfolio remains at various stages of the disposal
process with 29 assets either notarised or in an advanced due diligence
stage. However, the other twenty-five assets are in
less advanced stages. Further, the most recent updated underwriter
(UW) appraisal as of June 2011 values the portfolio at EUR362 million,
that has led to an appraisal reduction of EUR83 million. Given
the high level of vacancy, the mixed quality of the portfolio and
the significant rollover risk, Moody's has revised its value
assessment. Based on Moody's value, the LTV ratio on the
securitised portion is 142%, compared to the UW's LTV
of 133%. As this loan undergoes a long work-out,
Moody's expects losses in the range of 25-50% on this loan.
To note, recoveries will be volatile as the Servicer adheres to
an August 2013 legal final maturity for its syndicated piece.
The second largest loan, the Dresdner Office Portfolio Loan (31.8%
of the current pool), was the largest loan at securitisation and
represents a 50% pari passu interest in an interest-only
whole loan with a total outstanding loan balance of EUR380.7 million.
The loan matures in January 2013 and the remaining 50% of the loan
is securitised in the Deco 10 - Pan Europe 4 plc transaction.
The loan was originally secured by a portfolio of 303 properties with
839,856 sqm commercial space located throughout Germany with the
highest concentration in Frankfurt (31.7% of total in-place
rent). Currently, 170 properties remain in the pool,
with six assets disposed of in the most recent July 2012 IPD. Approximately
75% of the current rental income derives from Commerzbank AG (A3).
Vacancy on the portfolio has increased since securtisation to 33%
from 16%, primarily due to the integration of Dresdner Bank
AG into Commerzbank AG, where Commerzbank AG has exercised break
options. Despite the increased vacancy, coverage is strong
on the loan with an ICR of 2.36x. Additionally, a
June 2012 UW appraisal values the portfolio at EUR773 million, resulting
in an LTV of 49.2%. Based on Moody's LTV of
58%, a loss range of 0-25% is projected on
The third largest loan is the PGREI Loan (19.4% of the pool).
The loan is secured by 55 retail properties throughout Germany.
The ICR is adequate at 1.55x and vacancy remains low at 0.5%.
Net operating income has been stable since closing and the rollover risk
is limited going forward with a WALT of more than 7 years. The
loan matures in July 2014 and scheduled amortisation during the term is
1.5% of the initial loan amount per annum. There
has not been an updated valuation since 2006; therefore, Moody's
LTV of 96% deviates from the U/W LTV of 76%, incorporating
overall weakness in the occupational and lending markets. While
Moody's believes there is risk that the loan will default at maturity,
it projects a loss range of 0-25% on this loan citing that
the Servicer will have until legal final maturity to work out the loan.
Portfolio Loss Exposure: Moody's expects a significant amount of
losses on the securitised portfolio, stemming mainly from the uncertain
work-out strategy for the Treveria I Loan. The expected
losses are likely to crystallise before the legal final maturity date,
subject to the syndicated piece's shorter legal final maturity.
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.
Furthermore, as discussed in Moody's special report "Rating Euro
Area Governments Through Extraordinary Times -- An Updated
Summary," published in October 2011, Moody's is considering
reintroducing individual country ceilings for some or all euro area members,
which could affect further the maximum structured finance rating achievable
in those countries.
The 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. Moody's
prior assessment is summarised in a press release dated 30 November 2009.
The last Performance Overview for this transaction was published on 02
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
London E14 5FA
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's comments on the performance of the EMEA CMBS transaction DECO 9 - Pan Europe 3 p.l.c.
Moody's Investors Service Ltd.
One Canada Square
London E14 5FA
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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