(The following statement was released by the rating agency)
Oct 10 - Fitch Ratings has downgraded LCP Proudreed Plc's class A and Bcommercial mortgage-backed floating rate notes due 2016 and affirmed the twojunior tranches as follows:
GBP239.3 class A (XS0233008936) downgraded to 'AAsf' from 'AAAsf'; OutlookNegative
GBP32.2m class B (XS0233010163) downgraded to 'Asf' from 'AAsf'; OutlookNegative
GBP36.8m class C (XS0233010676) affirmed at 'BBBsf'; Outlook revised to Negativefrom Stable
GBP9.2m class D (XS0233011054) affirmed at 'BBsf'; Outlook revised to Negativefrom Stable
Despite relatively stable collateral performance, Fitch's view of the ongoingweakness in regional/secondary commercial real estate market (assets of whichlargely secure the loans in this CMBS), as evidenced by widening yield spreadsand uncertainty over future refinancing prospects, together with the top-heavycapital structure, forms the basis for the downgrades and Negative Outlooks.
The borrowers are covenanted to maintain a maximum loan-to-value ratio (LTV) of70% at each loan calculation date starting in November 2012. A covenant breachcan be cured either by partial loan (and by extension, note) redemption or byproviding additional collateral as security for the bondholders. While currentreported LTVs are only slightly above the covenant level, Fitch estimates theleverage to be well in excess of 80%. With new updated valuations due within 12months, the borrowers' commitment to meeting the LTV covenant is likely to betested.
In the event of a covenant breach, and in lieu of borrower intervention, excessrental income will be trapped and utilised to reduce borrower indebtedness.Strong income performance (interest cover is 3.84x and 3.57x for LCP andProudreed, respectively) still provides good potential for the loans to de-leverto a level which will protect the class D notes against losses.
The transaction is a securitisation of two commercial mortgage loans originatedin the UK by HSBC Bank plc ('AA'/Negative/'F1+'), which closed in 21 December2005. The loans are secured against 120 commercial properties located acrossEngland, comprising retail (32%), industrial (34%), office (3%), and shoppingcentre properties (31%).
A performance update report will shortly be available on
(Caryn Trokie, New York Ratings Unit)