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23 Feb 2010
GBP 315 million of EMEA CMBS affected
London, 23 February 2010 -- Moody's Investors Service has placed on review for possible downgrade
the Class A Notes issued by Radamantis (European Loan conduit No.
24) plc. (amounts reflect initial outstandings):
GBP315M Class A Commercial Mortgage Backed Floating Rate Notes due 2015,
Aa1 Placed Under Review for Possible Downgrade; previously on Jul
17, 2009 Downgraded to Aa1
The rating of the Class X Notes is not affected by today's rating action.
Moody's does not rate the Class B, C, D, E, F
and G Notes issued by Radamantis (European Loan Conduit No. 24)
1) Transaction Overview and Performance History
Radamantis (European Loan Conduit No. 24) plc represents the securitisation
of four commercial mortgage loans originated by Morgan Stanley Bank International
Limited and secured by first-ranking legal mortgages over four
commercial properties located in the Greater London area. The properties
are predominantly office use (99%) and the remainder retail use
Since closing, there have been no changes in the portfolio composition
and no repayments. The loans are not equally contributing to the
portfolio. The biggest loan, the Milton & Shire House
Loan represents 54.0% of the current portfolio balance,
while the smallest loan, the Hayes Business Park Loan, represents
11.5%. As of the last interest payment date,
all of the four loans in the portfolio were current. The current
loan Herfindahl index is 2.7, unchanged to closing.
On 19 February 2010, the servicer (Morgan Stanley Mortgage Servicing
Limited) announced that following recent negotiations, parties have
agreed to certain amendments of the Milton & Shire House Loan ("M&S
Loan") in conjunction with an extension and amendment of the respective
lease agreements with the single tenant Linklaters LLP. Also,
an updated valuation of the property securing the M&S Loan,
dated February 2010, has been reported.
According to the updated valuation as of February 2010, which is
based on the initial lease agreements in-place, the market
value of the M&S property declined since closing by 24% to
GBP270 million. The valuer indicated a potential further GBP10
million uplift to GBP280 million based on the assumptions of (i) the extension
of the existing leases by five years to 2026; and (ii) the removal
of the remaining break clause in one of the leases. The current
underwriter's ("U/W") M&S Loan-to-value
("LTV") increased to 99% from 75% for the senior
loan and to 112% from 85% for the whole loan compared to
closing. Moody's trough value assumption of GBP266 million for
the M&S Loan property as per its last rating review in July 2009 is
broadly in-line with both updated values provided as per February
2) Amendments to the Milton & Shire House Loan
The amendments to the M&S Loan agreement include (i) an extension
of the loan maturity date by 1.5 years to October 2012 from April
2011 ("initial maturity date"); (ii) continued interest
payments to both the senior and junior lender; (iii) commencing in
April 2011, the introduction of scheduled senior loan amortisation
of GBP750,000 per quarter (GBP4.5 million in total);
and (iv) effective immediately, the suspension of the cash sweep
payments towards the junior lender. The scheduled amortisation
should reduce the senior loan balance to GBP262 million in October 2012.
However, this will in Moody's opinion have only a limited impact
on the expected whole loan and senior loan exit LTV. Based on its
preliminary assessment, Moody's views the above described amendments
to the M&S Loan including changes to the lease agreements overall
as mildly positive for the lenders as a whole. Due to the extension
to October 2012, the M&S Loan now matures co-terminus
with the South Quay Plaza Loan.
According to the transaction documentation, the payment allocation
structure under the Notes reverts to fully sequential, if,
amongst others, (i) more than 21% of the principal amount
outstanding of the loans are "Specially Serviced Loans";
or (ii) the cumulative percentage of the loans (based on the total loan
amount as of the closing date), which have defaulted since the closing
date, is greater than 21% subject to certain additional conditions.
Based on recent discussions with the servicer, Moody's understands
that in the event that the M&S Loan would default at its extended
maturity date in October 2012 it would not necessarily immediately qualify
as a "Specially Serviced Loan", thereby not breaching
the sequential payment trigger on Notes level. According to the
servicer's interpretation of the transaction documents, a
non-payment of the M&S Loan at its extended maturity date entitles
the borrower to a 5-day cure period which would lapse only after
the respective interest payment date ("IPD) of the Notes.
It was also noted by the servicer that if the borrower indicates prior
to the extended maturity date that they will not be able to repay the
M&S Loan as scheduled and the servicer would deem it as an "Imminent
Risk of Default", then it would be possible that the M&S
Loan would be transferred to special servicing prior to the extended loan
Assuming (i) a repayment of the South Quay Plaza Loan at its scheduled
maturity date in October 2012 and (ii) a non-breach of the sequential
payment trigger, repayment proceeds for the South Quay Plaza Loan
would be applied on a modified pro-rata basis to all classes of
3) Rating Rationale
In July 2009 Moody's downgraded the rating of the Class A Notes to Aa1
from Aaa and affirmed the Aaa rating of the Class X Notes, following
a detailed re-assessment of the loan and property portfolio's credit
risk. Moody's main focus was on property value declines,
term default risk, refinancing risk and the anticipated work-out
timing for potentially defaulting loans. At that point, Moody's
highlighted an increased default risk of the four loans and in particular
a high default risk of the M&S Loan upon loan maturity in April 2011.
Today's review action has been prompted by:
- An in Moody's opinion still high likelihood of default of the
M&S Loan despite the extended loan maturity date in October 2012;
- Concerns over a delay of a sequential payment trigger breach
after the initial maturity date of the M&S Loan in April 2011,
which could result in a modified pro-rata allocation of repayment
proceeds of the South Quay Plaza Loan in October 2012 at Notes' level
and thereby delaying the redemption of Class A Notes and reducing available
credit enhancement for Class A noteholders.
As per last transaction review date in July 2009, Moody's anticipated
a high likelihood of default of the M&S Loan at its initial maturity
date in April 2011. The updated valuation for the property securing
the M&S Loan, which amongst others, also takes into account
the reduced future rental values under the lease agreements, is
broadly in-line with Moody's trough value assumption for 2010 as
per its July 2009 transaction review and will likely result in a still
high refinancing risk at the extended loan maturity date in October 2012
despite the 1.5 year extension.
Given the high default risk of the M&S Loan at its extended maturity
date in October 2012 and Moody's low default risk estimate for the
South Quay Plaza Loan in October 2012, it is not unlikely that repayment
proceeds will be applied on a modified pro-rata basis whereas a
non-payment of the M&S Loan at its initial maturity date in
April 2011 would have resulted in the remaining outstanding loan proceeds,
including the South Quay Plaza Loan, to be applied sequentially.
Based on preliminary scenario analysis undertaken by Moody's with respect
to (i) the updated valuation; (ii) changes to the existing leases;
and (iii) a potential delayed breach of the sequential payment trigger
Moody's deems the potential rating downgrade to be in the two to
three notch range. During its review, Moody's will analyse
the updated valuation in conjunction with amendments to the lease agreements
as well as the M&S Loan amendments in more detail. In addition,
Moody's will re-assess the performance of the four loans against
its expectations as of July 2009.
4) Rating Methodology
The principal methodologies used in rating and monitoring the transaction
were "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 Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website. The
last Performance Overview for this transaction was published on 16 November
Further information on Moody's analysis of this transaction is available
on www.moodys.com. 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@example.com."
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).
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's places the EMEA CMBS Class A Notes issued by Radamantis (European Loan Conduit No. 24) plc on review for possible downgrade
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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