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26 Aug 2009
EUR 76.4 million of CMBS affected
Frankfurt, August 26, 2009 -- Moody's Investors Service has today placed on review for possible
downgrade the following class of Notes issued by German Ground Lease Finance
II S.A. (amount reflects initial outstanding):
EUR76.4M Class A1 Secured Instruments due 2017, Aaa Placed
Under Review for Possible Downgrade; previously on Dec 22,
2006 Definitive Rating Assigned Aaa
The EUR41.1M Class B1 Secured Instruments due 2017 rated Aa3,
previously assigned Aa3 on 22 December 2006, are not affected by
today's review action.
German Ground Lease Finance II S.A. represents the securitisation
of five real estate funding notes ("REF Notes") that are in
turn secured by the rental income ("groundrents") derived
from hereditary building rights in relation to a portfolio of currently
10,578 apartments and 201 commercial units located in various German
cities. The hereditary building rights were created by separation
of the respective land from the right to use the building located on this
land. In relation to this transaction, the hereditary building
rights have been sold mainly to institutional property investors.
The transaction structure incorporates a long-dated inflation and
interest swap structure in order to mitigate the refinancing risk at REF
Note maturity. In addition, the Issuer benefits from a liquidity
facility in order to bridge cash flow shortfalls in the event of adverse
REF Note performance. An interest reserve fund serves as cushion
against potential adverse performance of the underlying groundlease portfolio.
The sponsor of German Ground Lease Finance II is Vivacon AG, which
serves several roles within the transaction. Vivacon AG is for
example the ultimate parent company of the property owning companies ("REF
Note Issuers") that issued the REF Notes and the property manager
of the groundlease portfolio.
Moody's rating review action today has been prompted by the liquidity
difficulties of Vivacon AG which have been reported since the second quarter
of 2009. In Moody's view, the current rating of the
senior class of the transaction may not be commensurate with the potential
legal or operational linkage of the transaction to Vivacon AG.
Vivacon AG acts as the sole property manager under the transaction collecting
the ground rents payable by the hereditary building rights holders.
Less than 50% of the rents payable are collected by direct debit
with the remaining amounts being transferred by the respective hereditary
building rights owners to the property manager. In this respect,
Moody's review will at this stage focus on the structure's
robustness against a potential default of the property manager.
This will include an assessment about the timing and the process of replacing
the property manager upon a potential default. In this respect,
Moody's will review whether transaction parties independent from
Vivacon AG are in possession of updated portfolio data and the cash flow
implications of a potential property manager default, i.e.
the timing of the ongoing flow of funds from the property manager to the
REF Note Issuers.
A potential default of the sponsor could also impact the underlying performance
of the groundlease payments, i.e. increase the arrears
levels of the groundlease portfolio. The impact of such a potential
increase in arrears is mitigated by the EUR 4 million interest reserve
fund (3.6% of the current note balance) and the EUR 11.5
million liquidity facility (10.2% of the current note balance)
in this transaction.
The REF Note Issuers are limited partnerships (Kommanditgesellschaften)
incorporated in Germany. The general partners of the REF Notes
Issuers are either Vivacon AG or companies affiliated with Vivacon AG.
Under German law, if one partner of a partnership becomes insolvent,
the partnership is dissolved and the remaining partner may have to make
a compensation claim to the insolvent partner. In order to make
this compensation claim, the REF Note Issuer may be forced to sell
its properties. However, the articles and associations of
the REF Notes Issuers include the concept of "solvent liquidation"
to provide for that in case of insolvency of any partner of the REF Notes
Issuers, the partnership is not dissolved, but continued with
such insolvent partner until all claims of creditors of the partnership
are satisfied. While in Moody's view the concept of solvent
liquidation mitigates the risk of a REF Note Issuer insolvency following
a potential insolvency of the sponsor, the concept of solvent liquidation
might include an active involvement of the REF Note Issuer's directors
and other transaction parties. Moody's review will therefore
include an assessment of whether the relevant parties are prepared.
The principal methodologies used in rating and monitoring the transaction
are "Update on Moody's Real Estate Analysis for CMBS Transaction in EMEA"
June 2005 and "Moody's Updates on its Surveillance Approach for EMEA CMBS"
March 2009, which can be found at www.moodys.com in
the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating this issue can also
be found in the Credit Policy & Methodologies directory. There
has been no rating action on the transaction since closing in December
2006. The most recent Performance Overview for this transaction
was published on 9 June 2009.
For updated monitoring information, please contact email@example.com."
To obtain a copy of Moody's Pre-Sale Report and or 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
Senior Vice President
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's places Class A-1 CMBS Notes issued by German Ground Lease Finance II S.A. on review for possible downgrade
Asst Vice President - Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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