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TEXT-S&P cuts Victoria Funding (EMC-III) ratings

OVERVIEW

-- Following our review of the remaining loan backing Victoria Funding (EMC-III), we consider that the risk of principal losses and cash flow disruption has increased.

-- The class D and E notes have, in our opinion, become more vulnerable to the deteriorating performance of the loan.

-- We have therefore lowered our rating on the class D and E notes.

-- Victoria Funding (EMC-III) is a 2005-vintage transaction currently backed by one loan secured by seven commercial real estate assets in the U.K.

-- The ratings in this transaction are based on our criteria for rating European CMBS. However, these criteria are under review. As a result of this review, our future European CMBS criteria may differ from the current criteria. The criteria change may affect the ratings on all outstanding notes in this transaction.

LONDON (Standard & Poor's) Oct. 12, 2012--Standard & Poor's Ratings Services today lowered its credit ratings on all of Victoria Funding (EMC-III) PLC's rated classes of notes (see list below).

Today's rating actions follow our review of the credit quality of the sole remaining underlying loan in the pool.

Victoria Funding (EMC-III) is a European commercial mortgage-backed securities (CMBS) transaction that closed in October 2005. Five of the six original loans have repaid in full since issuance. The only loan left in the pool is the Brisk loan.

CREDIT ANALYSIS

The Brisk loan is the last remaining loan in the pool. The loan was transferred into special servicing on July 4, 2012 following the borrower's failure to repay the loan at the September 2011 loan maturity date. The borrower subsequently filed for insolvency in July 2012. The special servicer, Citibank International PLC (A/Negative/A-1), has appointed a receiver. We understand that the receiver is in the process of evaluating its available options and that no money will be made available to service the loan until the loan is worked out.

The loan is secured on a parade of seven retail units located in Coventry. One of the retail units is vacant but the others are all let to various tenants, including retailers such as Betfred and Greggs. In July 2011, the reported value of the assets was GBP2,890,000 (based on a valuation dated July 2011). This compares with an outstanding loan balance of GBP2,199,522.

RATING ACTIONS

Following our review, we consider that the risk of principal losses has increased. In our opinion, net sale proceeds are unlikely to be sufficient to repay the loan balance in full, given investors' currently low appetite for secondary-quality assets. Consequently, we have today lowered our rating on the class E notes to 'CCC- (sf)' from 'B- (sf)'.

Although we consider that the likelihood of the transaction experiencing overall losses has increased, in our opinion, the level of credit enhancement available to the class D notes remains adequate to absorb the amount of losses that the underlying assets would suffer under higher stress scenarios. However, we have lowered our rating on the class D notes to 'BBB+ (sf)' from 'A (sf)' to reflect potential liquidity risk that may result from the issuer no longer receiving loan interest until the loan is worked out.

POTENTIAL EFFECTS OF PROPOSED CRITERIA CHANGES

We have taken today's rating actions based on our criteria for rating European CMBS. However, these criteria are under review (see "," published on Nov. 8, 2011).

As highlighted in our Nov. 8, 2011 Advance Notice Of Proposed Criteria Change, our review may result in changes to the methodology and assumptions that we use when rating European CMBS. Consequently, it may affect both new and outstanding ratings in European CMBS transactions.

On Sept. 5, 2012, we published our updated criteria for CMBS property evaluation (see ""). These criteria do not significantly change our longstanding approach to deriving property net cash flows and values in European CMBS transactions. We do not expect any rating action in Europe as a result of adopting these criteria.

However, because of its global scope, our criteria for global CMBS property evaluation do not include certain market-specific adjustments. We will therefore publish an application of these criteria to European CMBS transactions along with our updated criteria for rating European CMBS.

Until such time that we adopt updated criteria for rating European CMBS, we will continue to rate and monitor these transactions using our existing criteria (see "Related Criteria And Research").

STANDARD & POOR'S 17G-7 DISCLOSURE REPORT

SEC Rule 17g-7 requires an NRSRO, for any report accompanying a credit rating relating to an asset-backed security as defined in the Rule, to include a description of the representations, warranties and enforcement mechanisms available to investors and a description of how they differ from the representations, warranties and enforcement mechanisms in issuances of similar

securities. The Rule applies to in-scope securities initially rated (including preliminary ratings) on or after Sept. 26, 2011.

If applicable, the Standard & Poor's 17g-7 Disclosure Report included in this credit rating report is available at \t "_blank".

RELATED CRITERIA AND RESEARCH

-- Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012

-- CMBS Global Property Evaluation Methodology, Sept. 5, 2012

-- , July 12, 2012

-- Standard & Poor's Ratings Definitions, June 22, 2012

-- Counterparty Risk Framework Methodology And Assumptions, May 31, 2012

-- Various Rating Actions On Victoria Funding (EMC-III)'s CMBS Notes Due To Loan Redemption And Expected Principal Recovery, March 30, 2012

-- European Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, March 14, 2012

-- Request For Comment: Methodology For Rating Debt Issues Based On Imputed Promises, Feb. 10, 2012

-- Advance Notice of Proposed Criteria Change: Methodology And Assumptions For Rating European Commercial Mortgage-Backed Securities, Nov. 8, 2011

-- Global Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011

-- Principles Of Credit Ratings, Feb. 16, 2011

-- Timeliness of Payments: Grace Periods, Guarantees, And Use of 'D' and 'SD' Ratings, Dec. 23, 2010

-- Methodology: Credit Stability Criteria, May 3, 2010

-- Understanding Standard & Poor's Rating Definitions, June 3, 2009

-- Standard & Poor's Revises Criteria Methodology For Servicer Risk Assessment, May 28, 2009

-- European Legal Criteria For Structured Finance Transactions, Aug. 28, 2008

-- Framework For Credit Analysis In European CMBS Transactions, May 21, 2007

-- Weighing Country Risk In Our Criteria For Asset-Backed Securities, April 11, 2006

-- Rating U.S. CMBS In The Face of Interest Shortfalls, Feb. 23, 2006

-- Technical Challenges In European CMBS Structures, Feb. 16, 2006

-- European CMBS Loan Level Guidelines, Sept. 1, 2004

-- New Issue: Victoria Funding (EMC-III) PLC, Oct. 24, 2005

-- European CMBS Monthly Bulletin, published monthly

RATINGS LIST

Victoria Funding (EMC-III) PLC GBP263 Million Commercial Mortgage-Backed Floating-Rate Notes Class Rating To From Ratings Lowered D BBB+ (sf) A (sf) E CCC- (sf) B- (sf) (New York Ratings Team)

((e-mail: pam.niimi@thomsonreuters.com; Reuters Messaging: pam.niimi.reuters.com@reuters.net; Tel:1-646-223-6330;))