Frankfurt, July 13, 2010 -- Moody's Investors Service has commented today on the proposal to change
the investment manager for the F&C Commercial Property Finance Limited
securitisation transaction from F&C Investment Business Limited to
Ignis Investment Services Limited. This proposal was made in relation
to an intended restructuring consisting of an acquisition by UK Commercial
Property Trust Limited ("UKCPT") of the entire issued share capital of
each subsidiary of F&C Commercial Property Trust Limited, the
holding company of FCPT Holdings Limited, being the borrower under
this transaction (the "Proposal").
1) Transaction Overview and Current Performance
F&C Commercial Property Finance Limited represents a securitisation
of a loan provided to FCPT Holdings Limited (formerly F&C Commercial
Property Trust Limited, the "Borrower") for the acquisition of initially
30 properties located in the UK and investments in two indirect property
funds. The transaction, which closed in March 2005,
is a flexible pool transaction giving the Borrower and/or its investment
manager the ability to alter the composition of the property portfolio
and incur additional debt, as long as the investment policy and
certain covenants are satisfied. Moody's views this transaction
as a hybrid of structured finance and fundamental analysis, primarily
due to the flexibility to change the property portfolio composition.
The underlying collateral consisted at closing of a reasonably well diversified
portfolio of (i) 30 properties with an aggregate U/W market value of GBP791.4
million and (ii) units of two property funds with an aggregate U/W market
value of GBP133.9 million. The total loan collateral
value was GBP925.4 million. Currently the portfolio
consists of 32 properties with an aggregate U/W market value (as of May
2010, save in respect of the Chorley Property which was valued as
at 18 June 2010) of approximately GBP800million.
The current investment manager is F&C Investment Business Limited
while F&C REIT Property Asset Management plc acts as property manager
for the portfolio. Due to the above mentioned flexibility in the
portfolio composition given to the Borrower and/or its investment manager,
the quality of the investment manager and the investment policy are rating
As of the latest investor report (December 2009), the securitised
loan is current. No performance issues have occurred since closing
and the financial ratios with an LTV of 30.9 % (vs.
24.9% at closing) and an ICR of 3.64x succeeding/3.57x
preceding (vs. 3.7x at closing) continue to meet the respective
covenant levels of 40% and 1.5x.
The loan matures in the end of June 2015. In Moody's opinion,
taking into account the covenants in the transaction, the refinancing
default probability of the loan at maturity is below average due to the
low expected LTV ratio and the high exit debt yield based on the underlying
property cashflows from the portfolio.
2) Moody's Analysis
Moody's has been informed that UK Commercial Property Trust Limited ("UKCPT")
intends to acquire the entire issued share capital of each subsidiary
of F&C Commercial Property Trust Limited ("FCPT").
The acquisition shall be effected through a voluntary solvent liquidation
Within the scope of the acquisition transaction the current investment
manager, F&C Investment Business Limited, and the property
manager, F&C REIT Property Asset Management plc, shall
be replaced by Ignis Investment Services Limited ("Ignis"),
which will outsource the property management services to Jones Lang LaSalle
a) Change of the investment manager
Ignis is part of the Phoenix Group and a wholly owned asset management
subsidiary of Ignis Asset Management Limited. Ignis currently has
approximately GBP 69 billion of assets under management, of which
GBP 3.3 billion are commercial property assets. The company
employs c. 530 employees of which 130 are investment professionals.
The company is headquartered in London.
As part of its management review, Moody's met with Ignis'
property portfolio manager designated to be responsible for the management
of the property portfolio securing the securitised loan. Moody's
discussed Ignis' asset management procedures, including its
acquisition criteria, approval processes, valuation methodology,
servicing procedures (thereunder the terms and conditions of the intended
outsourcing of the property management service to JLL), general
market trends and Ignis property market expectations.
In Moody's view Ignis is a reputable manager with a proven ability
and experience of managing commercial real estate assets which are similar
to the property portfolio underlying the transaction.
The new investment management agreement ("IMA") shall,
however, be effective first on a so called effective date,
being the date on which the acquisition becomes effective. In the
event that the effective date is not on or before 28 October 2010 the
new IMA shall cease. According to the termination notice already
served to the current investment manager, the existing investment
management agreement shall terminate on 9 December 2010 latest.
In Moody's view, in case the intended acquisition does not
take place, there might be time pressure for the Borrower to find
and appoint a new investment and asset manager for the property portfolio.
The potential risk is in Moody's view mitigated by:
(i) Commercial aspects consisting of (a) the strong cash flow performance
of the transaction resulting in having sufficient funds for providing
to the market an attractive and competitive offer in this respect as well
as (b) the presence of two investment managers familiar with the portfolio:
Ignis and F&C, which both indicated their desire to become or
alternatively remain involved in its investment and asset management;
In Moody's view it is likely that they would be interested in providing
the investment and asset management services to the portfolio also independently
from the restructuring, and
(ii) The Borrower's contractual default covenant under the securitised
loan agreement to maintain an investment manager appointed for this pool,
which in Moody's view incentivises the Borrower to find a replacement
According to Moody's understanding, the proposed restructuring
will be in the form of an acquisition of the assets of F&C Commercial
Property Trust Limited (the "Shareholder" of the Borrower) by UK Commercial
Property Trust Limited. This acquisition will include the purchase
of the entire share capital of the Borrower. After the transaction,
it is intended to initiate a voluntary, solvent liquidation of the
Shareholder. Within the restructuring it is not intended to:
(i) Change the structure of the secured group (the secured group will
remain limited to the Borrower and its property owning subsidiary);
(ii) Change the investment policy of the Borrower, and there will
be no acquisition or disposal of properties into or from the secured group
in connection with the restructuring; and
(iii) Change any control provisions included in the notes documentation.
Taking the above into consideration and based on the legal/tax opinions
provided as drafts, in Moody's view the intended restructuring
in itself does not negatively impact the rating on the notes for the following
(i) Entering into the proposed restructuring transaction should not have
any adverse tax consequences for, or prejudice the tax residence
status of the Borrower and its property holding subsidiary;
(ii) The risk of negatively affecting the ring fenced status of the Borrower
and piercing its corporate veil through the restructuring seems to be
limited; under UK and Guernsey law it is only in exceptional circumstances
that the principle of separate legal personality of a company is ignored
for a company where it is formed for and managed in accordance with legitimate
and proper purposes and functions as a separate and independent corporation.
Based on Moody's understanding of the proposed restructuring,
it does not change the Borrower's status in this respect compared
to the current situation.
Moody's will continue to closely monitor further developments with respect
to this transaction, in particular (i) the outcome of the approval
process of the intended restructuring by the shareholders and (ii) further
steps towards an introduction of the new investment manager into the transaction.
3) Rating Methodology
The principal methodologies used in rating and monitoring the transaction
are "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"
March 2009, which can be found at 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 issue 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 moodys.com/SFQuickCheck.
The last rating action on this transaction was the rating assignment on
18 March 2005. The last Performance Overview for this transaction
was published on 14 December 2009.
For updated monitoring information, please contact firstname.lastname@example.org.
To obtain a copy of Moody's Pre-Sale Report and or New Issuer Report
on this transaction, please visit Moody's website at www.moodys.com
or contact our Client Service Desk in London (+44-20-7772
Senior Vice President
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Vice President - Senior Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's comments on the restructuring proposal for EMEA CMBS issuance of F&C Commercial Property Finance Limited