OREANDA-NEWS. Fitch Ratings has upgraded Hercules (Eclipse 2006-4) plc as follows:

GBP153.1m class A (XS0276410080) affirmed at 'BBB+sf'; Outlook Stable
GBP43.9m class B (XS0276410833) upgraded to 'BBB-sf' from 'BBsf'; Outlook Stable
GBP25m class C (XS0276412375) upgraded to 'B+sf' from 'Bsf'; Outlook Stable
GBP50.9m class D (XS0276413183) affirmed at 'CCCsf'; Recovery Estimate (RE) revised to 90% from 50%
GBP28.9m class E (XS0276413340) affirmed at 'CCsf'; RE0%

Hercules is a securitisation of originally seven, now three, commercial real estate loans originated by Barclays Bank PLC and The Royal Bank of Scotland plc. As of end-April 2016, two of three outstanding loans were performing.

KEY RATING DRIVERS
The upgrade of the class A to C notes and the upward revision of the class D notes' RE reflects substantial loan repayments since the last rating action in May 2015, with both the GBP49m Endeavour and GBP55m Booker loans repaying in full. The rating action is further supported by the stable performance of the GBP202m River Court and GBP28m Welbeck loans, which are still outstanding.

The distressed ratings for the class D and E notes reflect the poor performance of the defaulted GBP72m Ashbourne loan, secured by a portfolio of nursing and residential care homes spread across the UK. Fitch expects a material recovery on the class D notes (as reflected in the increased recovery estimate) in view of market interest in the portfolio, although recoveries may only be realised after bond maturity due to potential delays. For instance, replacing the special servicer could disrupt a speedy resolution if the consensual marketing process breaks down. Fitch did not give credit to recoveries from the Ashbourne loan in rating scenarios of 'Bsf' or higher.

The River Court loan finances the Fleet Street offices of Goldman Sachs International in the City of London. The Goldman lease expires in 2025, with a break option in 2020. In line with its criteria, Fitch has assumed the break option will be exercised, which takes into consideration the tenant's plan to relocate to a new City office campus. Based on Fitch's estimate of market value, a refinancing of the loan at its October 2016 maturity seems possible.

The Welbeck loan finances a portfolio of predominantly amusement arcades in England and Scotland. Performance of the portfolio has been reasonably stable with an interest coverage ratio (ICR) at 1.7x at end-January 2016. The debt service coverage ratio (DSCR) has been hovering just slightly above 1x. The servicer is reportedly in ongoing discussion with the borrower on a potential refinancing of the loan at its July 2016 maturity date.

Fitch estimates 'Bsf' Recoveries of around GBP230m (excluding any recoveries from the Ashbourne loan).

RATING SENSITIVITIES
A further delay in realising recoveries from the Ashbourne portfolio may negatively affect the recovery estimate for the class D notes.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Fitch did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. The subsequent performance of the transaction over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.
Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION
The information below was used in the analysis.
-Loan-by-loan data provided by the servicer and cash manager at end-January and end-April 2016
-Transaction reporting provided by the servicer and cash manager at end-January and end-April 2016
-Discussions with the servicer at end-May 2016