EUR 445 million of CMBS affected
London, 14 February 2011 -- Moody's Investors Service has today downgraded the following classes of
notes issued by Europrop (EMC VI) S.A (amounts reflect initial
Issuer: EuroProp (EMC VI) S.A.
....EUR380.25M Class A, Downgraded
to Baa2 (sf); previously on Aug 13, 2010 Aa3 (sf) Placed Under
Review for Possible Downgrade
....EUR30M Class B, Downgraded to B2
(sf); previously on Aug 13, 2010 Baa3 (sf) Placed Under Review
for Possible Downgrade
....EUR35M Class C, Downgraded to Caa2
(sf); previously on Aug 13, 2010 B2 (sf) Placed Under Review
for Possible Downgrade
Moody's does not rate the Classes D, E, F and R Notes issued
by Europrop (EMC VI) S.A.
Today's rating action concludes the review for possible downgrade that
was initiated for the Class A, B and C Notes on 13 August 2010 following
the default of two loans in the pool, the EPIC Rhino and EPIC Horse
Loans. Today's rating action takes Moody's updated
central scenarios into account, 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 significantly since the last review in November
The rating downgrade on the Classes A, B and C Notes is due to Moody's
expectation of increased refinancing default risk and loss assessment
for the loans in the pool given (i) the high proportion of loan maturities
in 2011 (42.5% of current pool balance) and 2012 (17.3%),(ii)
the predominance of secondary quality properties in the pool, for
which the availability of financing decreased over the past year (iii)
the overall Moody's weighted average loan to value ratio (LTV) on
the pool is above 100%, which makes refinancing in this lending
market environment very unlikely, (iv) the limited increase in property
values over the next two years given the continued upward yield pressure
for non-prime properties and (v) the default of the EPIC Rhino
and EPIC Horse Loans (12.5% of pool balance).
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) real estate fundamentals
will remain weak 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
MOODY'S PORTFOLIO ANALYSIS
EuroProp (EMC VI) S.A. closed in June 2007 and represents
the securitisation of 18 commercial mortgage loans. Seventeen loans
were originated by Citibank International PLC and Citibank N.A.,
London and one loan was jointly originated by Citibank International PLC
and Deutsche Bank AG. The loans are secured by first-ranking
mortgages over 125 commercial properties located in Germany and France.
Since closing the portfolio composition has not changed and based on the
underwriter's ("U/W") market value as of October 2010, 89%
of the properties are located in Germany and 11% are located in
France (the Signac Loan is the only loan backed by a property located
in France). The property types by U/W market values are retail
(43.5%), office (26.4%), logistics
(16.5%) and residential (13.6%).
Since closing none of the loans have fully repaid or prepaid. The
current loan Herfindahl index is 9.4 and remains almost unchanged
since closing as a result of no prepayments and only limited amortisation
within the loan pool.
Since our last review of the transaction in November 2009, two loans,
the EPIC Rhino and the EPIC Horse Loans (representing 6.9%
and 5.6% of the pool balance as per October 2010 IPD respectively)
have entered into special servicing due to a partial payment default as
per July 2010 IPD. These are the only loans currently in special
servicing in this transaction. The EPIC Rhino Loan is secured over
eight residential properties located in Germany. The EPIC Horse
Loan is secured by mixed use residential and commercial properties located
in Germany. Both loans were re-valued as of September 2010
resulting in a value decline since closing of 28% and 22%
respectively for the EPIC Rhino and EPIC Horse Loans. Based on
the updated re-valuations the current LTV of the loans are 98.4%
and 98.7% respectively, which is in line with Moody's
current LTV for these loans. The special servicer is currently
evaluating options on the workout of these loans. Moody's
expects high losses to be realised on both of these loans.
The Signac Loan (10.3% of the current pool balance) continues
to be in breach of its ICR and LTV covenant, which constitutes an
event of default under the loan agreement. The loan, which
is secured by a non-prime office building in the suburbs of Paris
is exposed to significant lease roll over risk due to lease break options
or lease expiries representing about 72% of rental revenues in
or shortly after its maturity date in July 2011. Moody's
did factor into its analysis the short term nature of office lease terms
in France when deriving a sustainable cash flow. The current reported
Whole Loan LTV for this loan is 82% compared to the current Moody's
Whole Loan LTV of 112%.
The largest loan in the pool is the Sunrise II Loan (23.3%
of the current pool balance). The loan represents a 50%
pari passu syndication interest in the whole loan with a total outstanding
loan balance of EUR218.3million.The loan is secured by 48
mainly retail properties across twelve German Federal States. The
locations of the properties are generally medium sized towns and suburban
locations of major cities. The reported vacancy rate as per the
October 2010 IPD is approximately 16% compared to 1% at
closing. The current reported LTV on this loan is 85% compared
to the current Moody's LTV of 120%. Moody's property
value estimate considers the (i) secondary quality of the buildings and
(ii) some potential rental income deterioration resulting mainly from
the existing lease expiry profile. The refinancing risk for the
loan which matures in July 2011, has increased significantly since
Moody's last review.
Gutperle Loan (13.3% of the current pool): The loan
is secured by two industrial warehouses located in Offenbach and Minden
in Germany with loan maturity date in January 2012. The Offenbach
property is fully let to Daimler Chrysler KG with Daimler AG (A3) jointly
and severally liable for all duties under the lease until January 2021.
The Minden property is fully let to ESM Ertl Systemlogistik GmbH &
Co. until July 2012. The main challenge faced by this loan
is the upcoming refinancing. The short remaining lease term on
the Minden property could potentially hinder the refinancing of the loan.
Moody's estimated Whole Loan LTV for this loan at maturity is 90%
which takes into account the short remaining lease term on the Minden
The Henderson Staples Loan (8.6% of pool balance as per
October 2010 IPD) has been facing difficulties with tenants arrears since
April 2010. As per the October 2010 IPD, tenants representing
57% of the gross income are still in arrears. The reported
vacancy is 19% compared to full occupancy at closing. The
reported ICR is 0.41x. All interest payments on the loan
have been met to date. The current reported UW LTV is 72%
compared to the current Moody's LTV of 143%. Moody's
property value considers (i) the secondary quality of the properties (ii)
the current vacancy levels and (iii) rental income volatility based on
high tenant arrears as well as the existing lease expiry profile.
Moody's highlights that the Luneburg, Henderson 1 and the
Bardowick loans (collectively representing 4.8% of the pool
balance as per October 2010 IPD) are exposed to significant lease roll
over risk due to lease break options or lease expirations on or shortly
after their maturity dates which could adversely affect the refinancing
for these loans.
Refinancing Risk: Four loans (representing 42.5% of
the pool balance as per October 2010 IPD) have their maturity in 2011,
two loans (17.3%) in 2012 and the remainder in 2013.
Moody's considers the properties 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 2011 EMEA CMBS Central Scenarios report, 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 crystallise only towards the end of the transaction term.
The current subordination levels of 22.8% for the Class
A, 16.6% for the Class B and 9.3% for
the Class C 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 rating action.
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 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.
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 November 2009.
The last Performance Overview for this transaction was published on 25
January 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 protected]
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.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information and confidential and proprietary Moody's Investors
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on the issuer or obligation satisfactory for the purposes of maintaining
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Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
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 Investors Service Ltd.
Moody's downgrades three classes of EMEA CMBS Notes issued by Europrop (EMC VI) S.A
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