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12 Mar 2010
GBP 315 million of EMEA CMBS affected
London, 12 March 2010 -- Moody's Investors Service has today downgraded the Class A Notes issued
by Radamantis (European Loan Conduit No. 24) plc (amounts reflect
GBP315M Class A Commercial Mortgage Backed Floating Rate Notes due 2015
Notes, Downgraded to Aa3; previously on Feb 23, 2010
Aa1 Placed Under Review for Possible Downgrade
The rating of the Class X notes is not affected by today's rating action.
Moody's does not rate the Class B, C, D, E, F
and G Notes issued by Radamantis (European Loan Conduit No. 24)
1) Transaction Overview and Performance History
Radamantis (European Loan Conduit No. 24) plc closed in August
2006 and represents the securitisation of four commercial mortgage loans
originated by Morgan Stanley Bank International Limited and secured by
first-ranking legal mortgages over four commercial properties located
in the Greater London area. The properties are predominantly office
use (99%) and the remainder retail use (1%).
Since closing, there have been no changes in the portfolio composition
and no repayments. The loans are not contributing equally to the
portfolio. The biggest loan, the Milton & Shire House
Loan ("M&S Loan"), represents 54.0%
of the current portfolio balance, while the smallest loan,
the Hayes Business Park Loan, represents 11.5%.
The current loan Herfindahl index is 2.7, unchanged since
closing. As of the last interest payment date (IPD) in January
2010, all four loans in the portfolio were current and none of them
was on the servicer's watchlist.
On 19 February 2010, the servicer (Morgan Stanley Mortgage Servicing
Limited) announced that parties had agreed to certain amendments of the
M&S Loan in conjunction with an extension and amendment of the respective
lease agreements with the single tenant, Linklaters LLP.
Due to its extension, the M&S Loan now matures at the same time
as the South Quay Plaza Loan (15% of the current portfolio) in
October 2012. An updated valuation of the property securing the
M&S Loan, dated February 2010, was also reported.
The updated valuation, based on the initial lease agreements in
place, indicated that the market value of the M&S property has
declined since closing by 24% to GBP270 million. Therefore,
the current underwriter's (U/W) M&S Loan-to-value (LTV)
increased to 99% from 75% for the senior loan and to 112%
from 85% for the whole loan compared to closing.
Since Moody's last reviewed the transaction in July 2009,
no further value declines have been reported other than for the property
securing the M&S Loan. Overall rental cashflows remained stable
with the exception of the South Quay Plaza Loan (15% of the current
portfolio). Since Moody's last review, the rental income
of the South Quay Plaza property has increased by approximately 13%.
The increase was due to the lease-up of the majority of the vacant
office space to one of the existing tenants following the departure of
2) Rating Rationale
Today's rating action concludes the review for possible downgrade
that was initiated on 23 February 2010 and takes into account (i) the
high likelihood of default of the M&S Loan despite its extended maturity
date; (ii) concerns over a delay of a sequential payment trigger
breach after the initial maturity date of the M&S Loan; and (iii)
the performance of the four loans compared to Moody's expectations
in July 2009. In Moody's opinion, following a detailed
re-assessment of the loan and portfolio's credit risk,
the expected loss of the Class A notes has increased, which resulted
in today's two notch downgrade.
The amendments to the M&S Loan agreement include (i) an extension
of the loan maturity date by 1.5 years to October 2012 from April
2011 (initial maturity date); (ii) continued interest payments to
both the senior and junior lender; (iii) commencing in July 2011,
the introduction of a) scheduled senior loan amortisation of GBP750,000
per quarter (GBP4.5 million in total) and b) the transfer of all
surplus cash available to the senior loan after payment of quarterly whole
loan interest ; and (iv) effective immediately, the suspension
of cash sweep payments to the junior loan. The amortisation payments
should reduce the senior loan balance to approximately GBP262 million
in October 2012. The M&S Loan agreement was further amended
by the addition of a clause giving the servicer the ability to call a
further valuation of the M&S property at the original maturity date
in April 2011. In case that the then reported value is lower than
the projected principal balance of the senior loan in October 2012,
the borrower is required to cover the shortage by providing (i) a suitable
third party guarantee; and/or (ii) a letter of credit/bank guarantee;
and/or (iii) cash (at the borrower's sole discretion). Based
on its rating review, Moody's views the above amendments to the
M&S Loan including changes to the lease agreements overall as mildly
positive for the lenders as a whole.
Following further analysis of the updated valuation and changes to the
existing leases of the property securing the M&S Loan, Moody's
revised its current trough value to GBP250 million from GBP266 million.
Going forward, the current value is expected to increase over time
to approximately GBP270 million by 2012. As a result, Moody's
expected exit LTV is approximately 110% on a whole loan basis and
approximately 97% on a senior loan basis. Moody's assessment
in July 2009 resulted in a slightly lower exit LTVs (approximatley 106%
for the whole loan and approximately 93% for the senior loan,
respectively). Therefore, Moody's still expects a high
likelihood of default of the M&S Loan at the extended loan maturity
date in October 2012 despite the 1.5 year extension.
Compared to its last transaction review in July 2009, apart from
taking into account the new market value of the M&S Loan, Moody's
has only revised its assumptions with respect to the South Quay Plaza
Loan as the biggest tenant has increased its contribution by approximately
30% of the property rental cashflow, while the remaining
rental value has remained stable. Moody's current LTV,
based on its trough value, has improved slightly to 73% from
75%. In Moody's opinion, the default risk of
the South Quay Plaza Loan at maturity in October 2012 remains low.
According to the transaction documentation, the payment allocation
structure under the Notes reverts to fully sequential, if,
amongst others, (i) more than 21% of the principal amount
outstanding of the loans are "Specially Serviced Loans"; or (ii)
the cumulative percentage of the loans (based on the total loan amount
as of the closing date), which have defaulted since the closing
date, is greater than 21%, subject to certain additional
Moody's notes that following the extension of the M&S Loan to
October 2012, there is an increased risk of a delay of a sequential
payment trigger breach, which could result in a modified pro-rata
allocation of repayment proceeds of the South Quay Plaza Loan at the Notes'
level, thereby delaying the redemption of the Class A Notes and
reducing available credit enhancement for Class A Noteholders.
However, if the borrower indicates prior to the extended maturity
date that a repayment of the M&S Loan as scheduled is unlikely,
the servicer could deem it as an "Imminent Risk of Default".
It would then be possible that the M&S Loan would be transferred to
special servicing prior to the extended loan maturity date which would
then trigger a sequential allocation of repayment proceeds.
Based on further scenario analysis with respect to a potential delayed
breach of the sequential payment trigger taking into account (i) the revised
portfolio value assumptions for the M&S Loan and South Quay Plaza
Loan; (ii) the still high default risk of the M&S Loan at its
extended maturity date coupled with a low default risk estimate for the
South Quay Plaza Loan in October 2012; it is not unlikely that repayment
proceeds for the South Quay Plaza Loan will be applied on a modified pro-rata
basis. A non-payment of the M&S Loan at its initial
maturity date in April 2011 would have resulted in the remaining outstanding
loan proceeds, including the South Quay Plaza Loan, to be
3) Rating Methodology
The principal methodologies used in rating and monitoring the transaction
were "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 issuer can also be found in the
Rating Methodologies sub-directory on Moody's website. The
last Performance Overview for this transaction was published on 25 February
Further information on Moody's analysis of this transaction is available
on www.moodys.com. 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.
For updated monitoring information, please contact email@example.com."
To obtain a copy of Moody's Pre-Sale 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).
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Class A CMBS notes issued by Radamantis (European Loan Conduit No. 24) plc
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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