Class X Notes remains on review for possible downgrade
Frankfurt am Main, March 17, 2011 -- Moody's Investors Service has today downgraded the Class A Notes,
Class B Notes, Class C Notes and Class D Notes issued by Centaurus
(Eclipse 2005-3) plc (amount reflects initial outstandings):
Issuer: CENTAURUS (ECLIPSE 2005-3) plc
....EUR381.2M Class A Notes,
Downgraded to A3 (sf); previously on Sep 30, 2009 Downgraded
to A1 (sf)
....EUR61.9M Class B Notes, Downgraded
to Ba1 (sf); previously on Sep 30, 2009 Downgraded to Baa2
....EUR97.7M Class C Notes, Downgraded
to B2 (sf); previously on Sep 30, 2009 Downgraded to Ba3 (sf)
....EUR94.5M Class D Notes, Downgraded
to Caa1 (sf); previously on Sep 30, 2009 Downgraded to B3 (sf)
The rating on the Class X Notes was placed on review for possible downgrade
on 2 March 2011 following Moody's new operational risks criteria.
Moody's will complete the review of the rating on the Class X Notes by
September 2011, as required by European regulations. Moody's
does not rate the Class E Notes.
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 September 2009.
Moody's increased loss expectation is due to the increased refinancing
default risk assessment for all five loans in the pool. The re-assessment
is driven by i) the expected high leverage at maturity based on Moody's
value of the collateral, ii) the size and complexity of the debt
to be refinanced and iii) the existing uncertainty with respect to the
path and timing of a recovery in the lending market, especially
with respect to the significant amount of German multifamily debt competing
for refinancing in 2012 and 2013.
The risk profile of this transaction is sensitive to a scenario in which
a portion of the pool consisting of above average credit quality loans
is repaid, as the proceeds would be allocated on a pro-rata
basis with no release premium. This risk has been incorporated
in Moody's ratings since closing.
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; we expect 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 January 2011 interest payment date, the transaction's
total pool balance was EUR 593.4 million down by 9% due
to scheduled amortization and some minor property disposals.
Centaurus (Eclipse 2005-3) plc represents a true sale of a portion
of five cross-defaulted but not cross-collateralised senior
loans (the "Senior Loans") secured by about 30,000 multifamily units
plus some commercial units and parking spaces located in mostly economically
and demographically weaker regions in Western Germany. The properties
were initially held by five companies that owned and managed the properties
until two Blackstone funds acquired those companies in 2004. The
purchase of the companies was financed through a complex debt structure
which includes (i) the Senior Loans, (ii) five senior ranking revolving
credit facilities, (iii) continuing debt that was predominately
ranking senior to the Senior Loans, and (iv) five Junior Loans.
At closing in December 2005, a pro-rata portion of 75.43%
of the Senior Loans was securitised in this transaction. Since
closing of the transaction, the Blackstone funds sold the majority
stake in the borrower group to a consortium of institutional investors.
All five partially amortising Senior Loans (and Junior Loans) mature in
One of the five Junior Loans has fully prepaid. The remaining four
Junior Loans are on the servicer's watchlist since February 2009
as interest payments are being deferred.
The cash flows generated by the properties are stable and within Moody's
expectations. The underwriter's value of the properties was
EUR 1.43 billion at closing. Currently, the portfolio
is valued at EUR 1.48 billion as per the last revaluation in December
2009. Moody's updated value assessment is EUR 1.12
billion, almost unchanged since the last transaction review in September
On an aggregated portfolio basis, Moody's current LTV is 105%
based on the Senior Loans, revolving credit facilities currently
drawn, continuing debt , Junior Loans and accrued interest
on Junior Loans. Moody's does not expect any noteworthy unit
disposals until loan maturity and expects its current LTV ratio to only
slightly decrease through maturity due to scheduled amortisation.
Given this high leverage level and the strong competition for refinancing
of German multifamily properties in a delayed lending market recovery,
Moody's has increased significantly its default assumptions at maturity
in September 2012.
This substantial probability of default in turn leads to a considerable
expected loss assumption. The current credit enhancement levels
provides some cushion for those losses, especially for the more
senior classes of Notes. The sequential paydown of all amortisation
proceeds will further increase credit enhancement for the Class A Notes.
However, Moody's believes that next to the refinancing risk a main
weakness of the transaction remains the non-cross collateralisation
of the loans, paired with (i) missing release premia upon prepayments
or repayments of whole loans by the borrowers (which could happen for
example if a borrower is sold and its debt prepaid or if a borrower successfully
refinances its debt while others do not) and (ii) the pro-rata
allocation of repayment at maturity and prepayment proceeds. In
a scenario where refinancing the whole debt amount or selling the total
property portfolio appears not possible, adverse selection might
occur in terms of refinancing or repaying the better (lower levered) loans
without a release premium and potential pro-rata allocation of
the proceeds, while the transaction remains exposed to the less
performing loans and borrowers without building up incremental subordination
for the more senior notes.
The principal methodologies used in this rating were "Update on Moody's
Real Estate Analysis for CMBS Transaction 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 did not receive or take into account a third
party due diligence report on the underlying assets or financial instruments
related to the monitoring of this transaction in the past six months.
Moody's does not have access to the underlying portfolio information relating
to the non recoverable costs.
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 30 September 2009.
The last Performance Overview for this transaction was published on 2
December 2010. 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 protected]
To obtain a copy of Moody's 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).
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings and public information.
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Frankfurt am Main
Vice President - Senior Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Andrea M. Daniels
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Deutschland GmbH
Moody's downgrades four Classes of CMBS Notes issued by Centaurus (Eclipse 2005-3) plc
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