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05 May 2010
GBP 149.2 million of CMBS affected
London, 05 May 2010 -- Moody's Investors Service has today downgraded the following classes of
Notes issued by Ursus EPC p.l.c. (amounts reflecting
GBP114.9M Class A Commercial Mortgage Backed Floating Rate Notes
due July 2012, Downgraded to Baa1; previously on Apr 3,
2009 Downgraded to A1
GBP9.7M Class B Commercial Mortgage Backed Floating Rate Notes
due July 2012, Downgraded to B1; previously on Apr 3,
2009 Downgraded to Baa3
GBP9.7M Class C Commercial Mortgage Backed Floating Rate Notes
due July 2012, Downgraded to Caa2; previously on Apr 3,
2009 Downgraded to Ba3
GBP9.5M Class D Commercial Mortgage Backed Floating Rate Notes
due July 2012, Downgraded to Ca; previously on Apr 3,
2009 Downgraded to Caa1
GBP5.4M Class E Commercial Mortgage Backed Floating Rate Notes
due July 2012, Downgraded to C; previously on Apr 3,
2009 Downgraded to Ca
Due to the repayment of all but one loans securitised in this transaction,
the total outstanding balance of the transaction has been reduced to GBP
1) Transaction and Portfolio Overview
Ursus EPC p.l.c. closed in August 2005 and represents
the true-sale securitisation of initially nine commercial mortgage
loans that were secured by 23 properties throughout the UK. As
of the closing date the portfolio was mainly exposed to office (56%
of the pool) and retail (26% of the pool) properties. As
per the last interest payment ("IPD") date in April 2010,
the transaction had only one loan remaining, the Castlegate Shopping
Centre Loan ("Castlegate Loan"). Due to the failure
to refinance the loan on its maturity date, it has been transferred
to the special servicer. The legal final maturity date of the transaction
is in July 2012.
The TK Maxx Loan fully repaid on its maturity date on 15 April 2010.
The Lamorna Loan and the Shazr Loan repaid on the April 2010 IPD after
having been transferred into special servicing in October 2009 when they
defaulted on their scheduled maturity date. As the sequential payment
trigger had not been hit before repayment of those loans, the repayment
proceeds of the three loans were allocated on a modified pro-rata
basis to the Notes (50% sequential and 50% pro-rata
to the Class A, B, C, D and E Notes). The default
of the Castlegate Loan now triggered the sequential distribution trigger
on the next IPD in July 2010 which will result in the fully sequential
allocation of principal proceeds received from this loan.
The Castlegate Loan is secured by a shopping centre located in Stockton-on-Tees
in the North East of England. The property was purpose built in
1973 and comprises approximately 342,000 sq ft. Anchor tenants
are Wilkinsons Hardware Stores, GCP Nominees (Hotel), Boots
and TJ Morris (together approximately 25% of the rental income).
According to the latest information as of April 2010 provided by the special
servicer, the current occupancy rate is approximately 97%
and the net operating income (NOI) is GBP 2.56 million, even
though the sub-tenant of the hotel is in administration.
Moody's was provided with a new valuation report as of January 2010.
Based on the valuation the market value of the property is GBP 29.2
million, while the value assuming a restricted marketing period
of only three months is reported at GBP 26.3 million. The
current loan to value ("LTV") is 124%, and the
current ICR is 1.23x.
2) Rating Rationale
Today's rating actions have been mainly prompted by:
(i) The default of the Castlegate Loan on its maturity date;
(ii) The modified pro-rata allocation of the repayment proceeds
of the TK Maxx Loan, the Shazr Loan and the Lamorna Loan shortly
before default of the Castlegate Loan; and
(iii) The limited work-out period for the special servicer in the
tail period of the Notes amid a distressed market environment with still
unfavourable lending conditions.
Following a detailed re-assessment of the loan and its impact on
the ratings, the expected loss has increased compared to Moody's
latest transaction review conducted in April 2009 and has resulted in
3) Moody's Analysis
In its analysis, Moody's considered potential work-out
scenarios that could be conducted by the special servicer and the impact
of those on the loan's recovery. The valuation called by
the servicer prior the loan's maturity date has revealed that the
property value decreased by 35% to GBP 29.2 million compared
to the January 2005 valuation from closing of the transaction (GBP 45.1
million). As of March 2008, the property was valued at GBP
47.9 million, i.e. the most recent valuation
represents a 39% value decline since then.
According to the valuation report, the shopping centre property
was last refurbished in 1996 and has been reasonable maintained.
However, the valuer notes the need of proactive maintenance going
forward to help to protect the value of the property. Based on
the report, the property value has been mainly impacted by the increase
of market yield for secondary shopping centres and the lower rental levels.
After the assessment of the valuation report, the analysis of the
most recent tenancy schedule and other information provided by the special
servicer, Moody's has adjusted its property value assessment to
GBP 28.5 million from GBP 31.6 million as per April 2009
based on Moody's assumed net cash flow of GBP 2.5 million.
Moody's current LTV for the single remaining loan is 126.6%
based on Moody's current value. It was no information provided
yet with regards to the special servicer's work-out strategy
of the loan. In this respect, Moody's notes the limited
time period until the legal final maturity date of the Notes in July 2012.
The ICR coverage ratio of the Castlegate loan has been relatively stable
after the impact of a major tenant default on the October 2009 IPD.
According to the latest tenancy schedule provided to Moody's, the
amount of leases breaking or expiring until the end of 2012 is limited
to below 20% of the current rent payable. Given the current
interest coverage ratio of 1.21x, Moody's does not assume
significant interest shortfalls under the loan until the legal final maturity
of the transaction.
Given the high LTV of the loan, Moody's expects very high losses
on the defaulted loan. The single loan nature of the pool and the
uncertainty around the work-out strategy has also increased the
uncertainty around this loss expectation, affecting the rating of
the senior notes in the capital structure.
Given the rather limited timeframe available (until mid-2012) for
a work-out for the special servicer, recovery aspects,
which can be measured by note-to-value ("NTV")
ratios, are of importance. Based on Moody's property
value the NTV ratios vary between 70% for the Class A Notes and
127% for the Class E Notes. As such, principal losses
on the Class C and, most notably, for the Class D and E Notes
are highly likely, bearing in mind that Moody's does not expect
a meaningful property value recovery until the transaction's legal
final maturity date. The more senior classes of Notes show NTV's
of below 100% and therewith have a higher likelihood of ultimate
The fixed to floating interest rate swap of the Issuer with respect to
the Castlegate Loan expired on the loan's maturity date. Hence,
given the currently low 3-months GBP-LIBOR rate, the
Issuer will benefit from excess interest income of the fixed rate Castlegate
Loan over the amounts due under the floating rate Notes and the transaction
costs. However, it is Moody's current understanding that
available excess spread will continue to be paid to the Class X Notes.
4) 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, "Moody's Updates on its Surveillance Approach for EMEA
CMBS" March 2009 and "Moody's Approach to Rating Structured Finance Securities
in Default", November 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 16 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 firstname.lastname@example.org."
To obtain a copy of Moody's New Issue 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).
Asst Vice President - Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades five classes of CMBS Notes issued by Ursus EPC p.l.c.
Senior Vice President
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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