EUR 825 million of CMBS affected
London, 18 April 2011 -- Moody's Investors Service has today downgraded the Class A Notes of Talisman-6
Finance p.l.c. (amounts reflect initial oustandings):
EUR825M Class A Notes, downgraded to Ba2 (sf); previously on
Nov 30, 2009 Downgraded to Baa1 (sf)
Moody's does not rate the Class X, B, C, D, E
and F Notes issued by Talisman-6 Finance p.l.c.
Today's review action takes Moody's updated central scenarios into account,
as described in Moody's Special Report "EMEA CMBS: 2011 Central
Scenarios".
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 value assessment for the properties securing these loans.
Moody's derives from these parameters a loss expectation for the securitised
pool. Based on Moody's revised assessment, the loss expectation
for the pool has increased significantly since the last review in November
2009. This is mainly driven by Moody's higher expected default
rates at the loans' maturity dates with 87% of the loan pool maturing
between now and January 2012.
This transaction has a number of weaknesses which have contributed to
today's downgrade. As mentioned, a large number of
loans mature in the near term and this is coupled with a high loan-to-value
(LTV) ratio on many of the loans. Therefore most of the loans are
expected default on their maturity date. The largest loan in pool
(38% of the pool balance), which will mature in July 2011,
will be very difficult to refinance or work-out due to the large
loan size (whole loan of EUR 426 million), the large underlying
portfolio involved (161 properties) and the fact that Moody's expects
no sponsor support for the loan since the sponsor is insolvent.
Also, most of the loans are secured by property portfolios with
major lease rollover exposures within the next four years which could
place pressure on cash flows, values and sale or refinancing prospects.
The Class A credit enhancement has not increased meaningfully since closing
and coupled with the decrease in values, results in a high note-to-value
on the Class A.
The transaction payment waterfall has already switched over to fully sequential
which will benefit the Class A Notes as loans repay or recovery proceeds
are realised. The sequential payment allocation will mitigate rating
sensitivity on the Class A Notes as increased credit enhancement from
loans that repay will offset the expected decrease in credit enhancement
from losses that Moody's expects to be allocated to the Class F
and E Notes within the next two years.
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
Talisman-6 Finance p.l.c. closed in April
2007 and represents the securitisation of initially nine commercial mortgage
loans originated by ABN AMRO Bank N.V. The loans are secured
by first-ranking mortgages over initially 276 commercial properties
located in Germany. Since closing, with the exception of
four small property disposal under the Orange Loan, there have been
no changes in the portfolio composition. The remaining 272 properties
in the pool are predominantly retail (49.6%, mainly
retail boxes with some high street retail) and mixed-use (27%,
predominantly multi-family).
The Cherry and Kiwi Loans (together 6.8% of the pool) are
in payment arrears and both are in special servicing. Furthermore,
the Cherry Loan was accelerated and insolvency proceeding opened in January
2010. The Mango Loan (8.4% of the pool) is in default
due to an LTV covenant breach. For all three of these loans,
the sale of the underlying properties is the stated work-out strategy
of the servicer/special servicer.
As a result of the continued payment default under the Cherry Loan there
has been a liquidity draw every quarter since the Aril 2008 IPD.
The liquidity draw on the January 2011 IPD amounted to EUR 2.42
million. Following the default of the Cherry Loan, there
has also been an appraisal reduction adjustment to the liquidity facility
after the properties securing the Cherry loan were re-valued.
The Class F Notes (not rated by Moody's), which are subject to an
available funds cap mechanism, have not received interest payment
or have only received partial interest payment since the January 2009
IPD.
Based on Moody's property value assessment, the weighted average
securitised LTV is 116% and the overall weighted average whole
loan leverage is 124%. Compared to this, the underwriter
weighted average securitised LTV is 87.1% and the whole
loan LTV is 92.2%. Four of the five loans where the
properties have been re-valued during 2010 have an underwriter
LTV in excess of 100%.
The largest loan in the portfolio, the Orange Loan (38% of
the pool and EUR 426 million whole loan balance) matures in July 2011.
It is secured by 161 properties which are mainly retail boxes, grocery
stores and some high street shops. The vacancy rate has increased
further since Moody's last review. The current vacancy rate
is 21.4% compared to 15.6% in November 2009
and 7% at closing. Consequently property portfolio cash
flows have deteriorated since closing as well. Furthermore 13%
of the leases (by rental income) will expire by the end of 2011 with another
37% of the leases expiring during 2012 and 2013. The portfolio
hasn't been re-valued since closing. Moody's
whole loan LTV for this loan at maturity is 135%. In Moody's
opinion this loan will default at its maturity date driven by its high
leverage and large size.
The Peach Loan (14.0% of the portfolio) also matures in
July 2011. It is secured by 25 mainly retail box properties.
The weighted average lease term to expiry is 5.8 years and vacancy
levels and cash flows have been relatively stable since closing.
Moody's whole loan LTV at maturity is 105%. Moody's
also expects this loan to default at its maturity date however Moody's
expects some sponsor support with respect to this loan and that there
is high chance that this loan could be worked with no or minimal loss.
Portfolio Loss Exposure: Moody's expects a 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 mainly towards the end of the transaction term.
The legal final maturity of the Notes is only in October 2016 and the
tail period after the longest dated loan (taking into account extension
options) is almost three years therefore the special servicer will have
time to work-out current and future defaulting loans in this transaction.
However, in the case of the Cherry Loan which has already been accelerated
and the Kiwi Loan, Moody's expects a faster work-out
and expects losses to be allocated to the Class F and E Notes within the
next two years.
RATING METHODOLOGY
The principal methodology used in this rating was "Update on Moody's Real
Estate Analysis for CMBS Transactions in EMEA" published in June 2005.
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 30th November 2009.
The last Performance Overview for this transaction was published on 24th
March 2011.
For updated monitoring information, please contact monitor.cmbs@moodys.com.
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
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
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
London
Viola Karoly
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
Moody's Investors Service Ltd.
One Canada Square
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JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades the Class A EMEA CMBS Notes issued by Talisman-6 Finance p.l.c.
