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Announcement:

Moody's comments on the restructuring proposal for EMEA CMBS issuance of F&C Commercial Property Finance Limited

13 Jul 2010

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 factors.

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 of FCPT.

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 Limited ("JLL").

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 manager.

b) Restructuring

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 reasons:

(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 monitor.cmbs@moodys.com. 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 5454).

London
Christian Aufsatz
Senior Vice President
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Frankfurt
Leokadia Szalkiewicz-Zaradzka
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
No Related Data.
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