Approximately EUR 1041 million debt securities downgraded
London, 25 February 2011 -- Moody's Investors Service has today downgraded the following classes of
Notes issued by SILENUS (European Loan Conduit No. 25) Limited
(ELoC 25) (amounts reflect initial outstandings):
EUR1035M Class A Notes, downgraded to Aa3 (sf); previously
on 27 May 2009 downgraded to Aa2 (sf)
EUR60M Class B Notes, downgraded to Ba1 (sf); previously on
27 May 2009 downgraded to Baa2 (sf)
EUR63M Class C Notes, downgraded to B2 (sf); previously on
27 May 2009 downgraded to Ba3 (sf)
EUR46M Class D Notes, downgraded to Caa2 (sf); previously on
27 May 2009 downgraded to B3 (sf)
At the same time, Moody's has affirmed the rating of the Class X
Notes. Moody's does not rate the Class E, Class F or Class
G Notes issued by ELoC 25. Today's rating action takes Moody's
updated central scenarios into account, as described in Moody's
Special Report "EMEA CMBS: 2011 Central Scenarios" published 2 February
2011.
RATINGS RATIONALE
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 updated value assessment for the properties securing the loans.
From those parameters a loss expectation can be derived for the securitised
pool. Based on Moody's updated assessment, the loss expectation
for the pool has increased materially since the last review in May 2009.
The rating downgrade of the Class A, B, C and D Notes today
is mainly due to (i) Moody's re-assessment of the refinancing risk
of the loans and (ii) a review of the expected property values which back
the loans in the pool.
Moody's expects a greater proportion of the loans to default at their
respective maturity dates, compared to the last review in 2009.
Almost one third (31.9%) of the pool matures in 2011,
and while overall transaction leverage is moderate at 68% on a
whole loan underwritten basis, the majority of the valuations have
not been updated since 2006. By way of contrast, Moody's
whole loan refinancing LTV is 85.7%.
By 2013, all loans except for the Eurocastle Retail D-Portfolio
Loan and the Tishman Munich Elisenhof Loan (23.4% in total)
will have reached their final maturity date, if not extended.
Moody's believes that there is less availability of financing for
commercial real estate loans compared with when the loans were originated.
In addition, stricter underwriting criteria are currently in place
for CRE lending in Europe. Moody's believes that lenders
currently prefer to underwrite at lower LTV ratios and on properties at
the "prime" end of the quality spectrum. As Moody's
central scenarios do not expect the lending markets to return to their
former state for the next two years, finding refinancing for the
loans in the pool is likely to be more difficult than it was at closing.
Furthermore, certain properties backing the loans are facing reducing
cashflows in the future as evidenced by projected ICRs, mainly due
to lease roll-over and non-renewals of existing leases which
may also impact the future refinancing of those loans.
A mitigating factor in today's rating action has been the good coverage
levels across the loan pool. Average portfolio DSCR is 2.23x,
an improvement from the 1.80x closing figure: this should
allow some loans to carry on servicing their debt even if they default
at maturity, and to carry on paying interest throughout the resolution
process. For the most part, Moody's assumption for
term default risk has slightly improved since the last review, although
not enough to offset the increased refinancing risk.
The ratings are also negatively impacted by the principal allocation rules
-- a significant portion of the pool needs to enter special servicing,
and to remain there, before principal proceeds can be allocated
to bondholders sequentially. Moody's modelled several prepayment
scenarios, including the scenario where the Defense Plaza loan successfully
repays in May 2011, and the ratings under that scenario would still
be within acceptable ranges and not alter today's rating outcome.
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 amortisation and loan re- prepayments or a decline
in subordination due to realised 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
ELoC 25 is a securitisation of 15 loans secured by 182 commercial properties
located in France (42.2%), Germany (33.3%)
and Italy. The properties comprise offices (61%),
retail (23%), multi-family residential accommodation
(7.5%), while other varied property types comprise
the remaining portion.
As of the February 2011 interest payment date, the total loan balance
was EUR 1,082.3 million, a reduction of approximately
EUR 161.0 million since closing. Most of that reduction
has come from prepayments: the Castel Romano loan (initially EUR
45 million) fully prepaid, and there have been partial prepayments
of the Margaux EDF loan through property disposals. The remaining
aggregate loan balance reduction has been through scheduled amortisation.
No loan is currently specially serviced and there have been no losses
to date. However, eight loans are on the servicer's
watchlist for differing reasons.
The largest loan in the pool is the Margaux EDF loan, which represents
17.5% of the current aggregate loan pool balance.
The loan is secured by 29 office properties across France, principally
occupied by Electricite de France ("EDF") (Aa3, P-1).
The loan is amortising, but has also been subject to property disposals,
such that its original balance has fallen from EUR 265 million to EUR
189.7 million. The loan is floating-rate and has
experienced increased coverage since closing owing to reductions in Euribor.
The loan has significant lease roll-over risk, as EDF has
been reducing its occupancy across the property portfolio. While
current vacancy is low at 3%, future vacancy is expected
to increase significantly. The loan matures in 2013, and
has a Moody's LTV ratio at refinancing of 91.5%.
Moody's assesses the default risk at loan maturity in August 2013 as very
high while the term risk is low given the rating of EDF as tenant.
The second largest loan in the pool is the Defense Plaza Loan, which
matures in May 2011. The loan is non-amortising, and
at EUR 169 million, represents 15.6% of the aggregate
current loan pool balance. The loan is watchlisted due to its pending
refinancing date. A single prime asset block in La Defense area
of Paris backs the loan, and this is multi-let, with
the largest tenant being GE Capital Equipment Finance. The coverage
on the loan has been good through time. There is also mezzanine
financing at hold co level for this property. Moody's LTV
ratio for the loan is 73% and the default risk at the maturity
date is deemed to be high.
The third largest loan in the pool is the Orazio Portfolio, maturing
in October 2012. Although the loan is non-amortising,
it must meet decreasing LTV covenants through time, which effectively
requires either revaluation of the properties or effective amortisation.
The properties backing this EUR 148.6 million loan consist of three
offices and 41 supermarkets across Italy, each let to a single tenant.
Moody's refinancing LTV for this loan is 84.4%.
The current LTV covenant is 82%, and the loan LTV as tested
at 31 Jan 2011 was 82.76%. A standstill is in place
until end of March 2011. The default risk on this loan is also
deemed as being very high.
Portfolio Loss Exposure: Moody's expects a very high amount of losses
on the securitised portfolio, stemming mainly from 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 crystallise
only towards the end of the transaction term.
Sensitivity Analysis: Moody's base case modelling assumes that at
least 50% of loan principal will be allocated sequentially,
and 50% according to the modified pro-rata allocation rules.
Moody's ratings could potentially show sensitivity if subordination levels
do not increase as expected through time. Moody's analysed several
sensitivity scenarios: in one scenario, all the loans redeem
at their scheduled maturity dates between now and 2013, but thereafter
all principal received is allocated sequentially; under this scenario
only limited rating sensitivity was exhibited.
RATING METHODOLOGY
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.
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.
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 27 May 2009.
The last Performance Overview for this transaction was published on 13
January 2011.
For updated monitoring information, please contact [email protected]
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).
REGULATORY DISCLOSURES
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, parties not involved in the ratings,
confidential and proprietary Moody's Investors Service information and
public information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
London
Lisa Macedo
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Christophe de Noaillat
Senior Vice President
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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Moody's downgrades four classes of pan-European CMBS Notes issued by Silenus (European Loan Conduit No. 25) Limited
