OREANDA-NEWS. Fitch Ratings has affirmed BL Superstores Finance PLC's notes as follows:

GBP205.4m class A2 (XS0244999016), due 2030, affirmed at 'AAAsf'; Outlook Negative

GBP180.6m class B2 (XS0245002331), due 2030, affirmed at 'Asf'; Outlook Stable

GBP49m class B3 (XS0245004972), due 2030, affirmed at 'Asf'; Outlook Stable

The transaction finances a portfolio of originally 35, now 27, UK superstore properties owned by a joint venture between The British Land Company Plc (BBB+/Stable/F2) and J Sainsbury plc. All the stores are tenanted to J Sainsbury plc, with a weighted average remaining lease term of 14 years.

KEY RATING DRIVERS

The portfolio has benefited from rising rental income over recent years, following periodic rent reviews. Substantial scheduled amortisation means the transaction will further deleverage, as long as payments under the lease are honoured, which should lead to moderate LTVs by loan maturity.

Fitch notes that most of the properties in the portfolio are in good (micro) locations. The stores are also used for deliveries of J Sainsbury's online retailing, which means their performance is not entirely reliant on more traditional retail distribution channels that have increasingly come under pressure in recent years. However, a default of the tenant would likely see a downward correction of current valuations, in particular for more peripheral stores.

Fitch notes the transaction documents allow for a disposal of individual assets, subject to payment of release prices and associated prepayment penalties, if applicable. It is at the borrower's discretion as to how these proceeds are being applied. While so far junior and senior bonds have been redeemed post disposal, skewing bond redemption to junior bonds may negatively affect the ratings. In Fitch's view, the portfolio is not heavily bar-belled in terms of asset quality and hence we deem the potential for adverse selection as limited.

The Negative Outlook on the class A2 bonds reflects the ongoing challenges for retail superstores, resulting from evolving consumer habits favouring smaller retail outlets and online formats.

RATING SENSITIVITIES

A significant deterioration in retail super store performance - and thereby achievable rental values - may negatively impact the notes' ratings.

Fitch's 'Bsf' market value is GBP595m.

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 transactions' 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.

- Transaction reporting provided by The British Land Company Plc as at April 2016

- Discussions with The British Land Company Plc as at July 2016