Frankfurt am Main, February 16, 2011 -- Moody's Investors Service has today downgraded the Class A Notes and Class
B Notes issued by Juno (Eclipse 2007-2) LTD (amount reflects initial
....EUR677.25M Class A Notes,
Downgraded to B1 (sf); previously on Oct 6, 2009 Downgraded
to Baa3 (sf)
....EUR69.15M Class B Notes,
Downgraded to Caa3 (sf); previously on Oct 6, 2009 Downgraded
to B3 (sf)
At the same time, Moody's affirmed the Aaa (sf) rating of the Class
X Notes. Moody's does not rate the Class C, Class D
and Class E Notes issued by Juno (Eclipse 2007-2) LTD. Today's
action takes into account Moody's updated central scenarios as described
in Moody's Special Report "EMEA CMBS: 2011 Central Scenarios."
The key parameters in Moody's analysis are the default probability of
the securitised loans (both during the term and at maturity) as well as
Moody's value assessment for the properties securing these loans.
Moody's derives from those parameters a loss expectation for the securitised
pool. Based on Moody's revised assessment, the loss expectation
for the pool has increased since the last review in October 2009.
The rating downgrade of the Class A and Class B Notes is due to a deterioration
in pool performance as reflected by cash flow issues faced by several
borrowers. Five loans totaling 63% of the current pool balance
is currently in special servicing, of which three loans (19.8%)
have shown a payment default as per the last Note IPD in November 2010.
Additionally, Moody's has increased its refinancing default
risk expectation and loss assessment for the loans given the high proportion
of loan maturities in 2011 (45% of the current pool balance).
Moody's considered in its re-assessment of the refinancing risk
(i) the continuing upward yield pressure for non-prime properties
(ii) the subdued lending market, especially for non-prime
properties, and (iii) a slower than previously expected recovery
of the lending market.
Moody's analysis reflects a forward-looking view of the likely
range of collateral performance over the medium term. From time
to time, Moody's may, if warranted, change these expectations.
Performance that falls outside an acceptable range of the key parameters
may indicate that the collateral's credit quality is stronger or weaker
than Moody's had anticipated during current review. Even so,
deviation from the expected range will not necessarily result in a rating
action. There may be mitigating or offsetting factors to an improvement
or decline in collateral performance, such as increased subordination
levels due to amortization and loan re- prepayments or a decline
in subordination due to realized losses.
Primary sources of assumption uncertainty are the current stressed macro-economic
environment and continued weakness in the occupational and lending markets.
Moody's anticipates (i) delayed recovery in the lending market persisting
through 2012, while remaining subject to strict underwriting criteria
and heavily dependent on the underlying property quality, (ii) values
will overall stabilise but with a strong differentiation between prime
and secondary properties, and (iii) occupational markets will remain
under pressure in the short term and will only slowly recover in the medium
term in line with the anticipated economic recovery. Overall,
Moody's central global scenario remains 'hooked-shaped'
for 2011; Moody's expects sluggish recovery in most of the
world's largest economies, returning to trend growth rate
with elevated fiscal deficits and persistent unemployment levels.
MOODY'S PORTFOLIO ANALYSIS
As of the November 2010 Note IPD, the transaction's total pool balance
is EUR 769.7m million down by 11% since closing due to repayments
and prepayments. 15 out of the originally 17 loans are remaining.
Based on the underwriter's ("U/W") market value as of November 2010,
35% of the properties are located in Germany, 26%
in Sweden, 23% in Italy and 16% in France and Belgium.
The property types by U/W market values are retail (43.5%),
office (26.4%), logistics (16.5%) and
The largest loan is the Keops Portfolio loan (28.5% of the
current pool). The loan is secured by a mixed office/industrial
portfolio located across Sweden. The loan has been in special servicing
since November 2009 due to the LTV default covenant breach. The
current U/W whole loan LTV is 102%. A standstill agreement
is in place with the borrower until end of February 2011 in order to allow
for the preparation of a disposal strategy. The special servicer
is investigating alternative strategies including enforcement.
The loan maturity is in October 2011. Moody's is expecting
high losses for this loan given Moody's whole loan LTV of 129%.
The second largest loan (Neumarkt, 15.9%) had a payment
default at the November 2010 Note IPD. The loan is secured by a
shopping centre in Cologne and it has been in special servicing since
July 2009 as a result of cash flow deteriorations. The vacancy
rate has increased from 7% at closing to currently 13%.
About 28% of the current rental income is subject to lease expiry
in 2013. Consequently, Moody's has adjusted its sustainable
cash flow expectations to derive a value which results in an expected
Moody's LTV at loan maturity in August 2013 of 143%.
This compares to the UW LTV of 111% which is based on a November
2009 valuation. Moody's expects high losses for this loan.
The SCI Clichy Loan (14.6%) is secured by one office property
close to Paris. The loan has been in special servicing since August
2009. The vacancy rate has increased to 38% from fully let
at closing. Debt service is currently topped-up by a reserve.
Moody's LTV at loan maturity in November 2011 is 165%.
Moody's expects high losses for this loan.
Two loans are currently on the servicer's watchlist: The fourth
largest loan (Obelisco Portfolio, 10.7%), secured
by a mixed office/industrial portfolio in Italy is in breach of the ICR
cash trap covenant. The fifth largest loans (Petersbogen,
9.2%), secured by a shopping centre in Leipzig is
in breach of the LTV default covenant. Moody's expected loss
for the Obelisco Portfolio is low given the assessed LTV of 67%
at loan maturity in December 2015. Moody's expects substantial
losses with respect to the Petersbogen loan. Moody's LTV
at loan maturity is 114%. The underlying value assessment
is incorporating that almost half of the current rental income is subject
to lease expiry in 2011.
The five largest loans combined contribute to 78% of the total
pool. The remaining ten loans contribute between 0.3%
and 4.6% to the total pool, respectively. Out
of those loans, the Senior and the Junior Den Tir Loan (3.2%
and 0.7%) have shown a payment default at the November 2010
Note IPD. The Senior Den Tir Loan represents an A-Note piece
and the Junior Den Tir Loan is a B-Note piece of the Den Tir whole
loan. The underlying shopping centre in Antwerp is facing significant
cash flow deteriorations. Moody's current A-Loan LTV
for this loan is 275% and the whole loan LTV is 335%.
All principal proceeds are allocated fully sequentially in this transaction
as the sequential payment trigger has been hit. Therefore,
credit enhancement through subordination is increasing for the Class A
Notes over time.
Refinancing Risk: Five loans (representing 45% of the pool
balance as per November 2010 IPD) have their maturity in 2011, five
loans (30%) in 2012 and 2013 and the remainder beyond 2014.
Moody's considers the property portfolio to be of average quality.
Moody's adjustment of the refinancing risk assessment is primarily
due to its current expectations that commercial real estate lending will
remain scarce over the next two to three years. As highlighted
in the Moody's Special Report "EMEA CMBS: 2011 Central
Scenarios, Moody's assumes that CRE lending will slowly resume
over the coming years but it will remain subject to strict underwriting
criteria and depend heavily on the quality of the underlying properties.
European non-prime property values are still under pressure given
the scarcity of financing for this market segment and hence a meaningful
recovery of non-prime property values is not expected before 2012/13.
Given the average quality of the property portfolio coupled with the refinancing
profile of this transaction, Moody's believes that this transaction
is particularly exposed to the recovery of the lending market over the
next two to three years.
Portfolio Loss Exposure: Moody's expects a very high amount of losses
on the securitised portfolio, stemming mainly from the performance
and the refinancing profile of the securitised portfolio. Given
the default risk profile and the anticipated work-out strategy
for defaulted and potentially defaulting loans, these expected losses
are likely to crystallize only towards the end of the transaction term.
The current subordination levels of 24.4% for the Class
A, and 15.5% provide protection against these expected
losses. However, the likelihood of higher than expected losses
on the portfolio has increased substantially, which results in today's
The principal methodologies used in this rating were "Update on Moody's
Real Estate Analysis for CMBS Transactions in EMEA" published in June
2005, and "Moody's Updates on its Surveillance Approach for EMEA
CMBS" published in March 2009.
Moody's Investors Service received and took into account one or
more third party due diligence reports on the underlying assets or financial
instruments in this transaction and the due diligence reports had a neutral
impact on the rating.
The updated assessment is a result of Moody's on-going surveillance
of commercial mortgage backed securities (CMBS) transactions. Moody's
prior review is summarised in a Press Release dated 06 October 2009.
The last Performance Overview for this transaction was published on 3
February 2011. 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).
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
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Frankfurt am Main
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
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Andrea M. Daniels
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Deutschland GmbH
Moody's downgrades Class A and Class B CMBS Notes issued by Juno (Eclipse 2007-2) LTD
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