OREANDA-NEWS. Fitch Ratings has revised the Outlooks on London & Regional Debt Securitisation No. 2 plc's (LoRDS 2) commercial mortgage-backed floating-rate notes due 2018 notes, and affirmed their ratings as follows:

GBP128.7m class A (XS0262542565): affirmed at 'BBBsf'; Outlook revised to Stable from Negative
GBP14.9m class B (XS0262544348): affirmed at 'BBB-sf'; Outlook revised to Stable from Negative
GBP46.4m class C (XS0262545402): affirmed at 'Bsf'; Outlook revised to Positive from Stable

LoRDS 2 is a securitisation of a single commercial mortgage loan secured by a portfolio of 18 office, retail and leisure properties located throughout the UK.

The transaction was restructured in December 2013 at which time noteholders agreed to a maturity extension of both the loan and the notes in return for an increase in note margin, the sponsors' provision of a GBP29m facility for capital expenditure (capex) and, among other things, a cash sweep and sequential pay-down of principal proceeds.

KEY RATING DRIVERS

The Outlook revision reflects the deleveraging of the transaction over the last 12 months with asset sales, cash sweep and an optional sponsor equity injection reducing total debt by GBP47.7m and the loan to value (LTV) ratio to 68% from 77%. The Positive Outlook on the class C notes reflects that full repayment of the secured loan is increasingly likely.

The terms of the restructure allow the borrower two options to extend the loan term by one year at October 2014 and October 2015, providing that the senior loan balance is no greater than GBP190m and GBP115m respectively. Although assets had been sold the sponsor was required to inject equity (approximately GBP5m) to meet the GBP190m threshold and utilise the first extension option.

The requirement for an equity injection to meet the business plan target suggests that investor appetite for the asset marketed to date, which Fitch expects to be mostly the secondary and tertiary properties of the pool, is still limited and that asset management initiatives would likely be required to reposition them. Nevertheless, the overall credit quality of the loan is still upheld by several high-value assets located in central London, which we would expect to be able to repay the vast majority of the rated notes should they be offered to the market.

The equity injection ultimately improves overall loan repayment prospects by allowing for less reliance on the weaker assets and increased the interest cover to 2.1x from 1.9x, providing greater cash sweep. It is also indicates a strong sponsor commitment to the repayment of the loan, an important sign particularly for a transaction without an independent servicer driving bond redemption.

RATING SENSITIVITIES

A material driver of the ratings will be the borrower's ability to accelerate the sell down of the portfolio and meet the October 2015 repayment hurdle.

Estimated 'Bsf' recoveries are GBP240m.