OREANDA-NEWS. Fitch Ratings has upgraded DECO 15 - Pan Europe 6 Ltd.'s class A1, A2, B and C notes due 2018 and affirmed the class D and E notes as follows:

EUR32.7m class A2 (XS0307400258) upgraded to 'AAAsf' from 'AAsf'; Outlook Stable
EUR68.2m class A3 (XS0307400506) upgraded to 'AAsf' from 'Asf'; Outlook Stable
EUR52.0m class B (XS0307401140) upgraded to 'BBBsf' from 'BBsf'; Outlook Stable
EUR53.5m class C (XS0307405133) upgraded to 'BBsf' from 'Bsf'; Outlook Stable
EUR41.3m class D (XS0307405729) affirmed at 'CCCsf'; Recovery Estimate (RE) 75%
EUR15.7m class E (XS0307406453) affirmed at 'CCsf'; RE0%

The transaction was originally the securitisation of 10 commercial mortgage loans secured on assets located in Germany, Austria and Switzerland. In July 2014, four loans remained. Although three loans have defaulted and one remains current, all four are trapping surplus cash to amortise the outstanding balances or fund capital expenditure (capex) on the collateral (predominantly retail warehouses in Germany).

KEY RATING DRIVERS
The upgrades reflect the switch to sequential principal allocation and the better than expected performance of the EUR27m AOK Schwerin loan, which was expected to produce approximately a 30% loss and repaid in full. Other two facilities repaid as expected, for an aggregate balance of EUR155m. Of the two expected repayments, one occurred after loan maturity. Although a short term extension was granted, the failure to repay timely ended the modified pro rata principal allocation to the notes. The class A3 notes' rating remains constrained by event risk concerning the repayment of the Freiburg loan and the exposure to two impaired facilities.

The EUR141.9m Mansford OBI Large failed to repay at its scheduled maturity in July 2014 and entered special servicing. The interest coverage ratio (ICR) increased to 5.5x from 1.5x pre default, as interest payments became floating. This allowed the securitised loan to be repaid by EUR0.8m over the last quarter alone.

The collateral, 10 retail warehouses located across Germany is fully let predominantly to OBI (a DIY chain) on leases maturing in 7.4 years (weighted average or WA). The first revaluation since closing is currently being conducted. Fitch believes that no equity remains and that the planned asset disposal will result in a significant loss.

The EUR68.9m Main loan has been in special servicing since failing to repay at its maturity in July 2011. Since then, the asset manager has attempted to stabilise asset performance before the assets are sold. Various tenants have been approached regarding lease extensions (as the WA remaining lease term of the 32 underlying retail warehouses is short at 3.6 years). Furthermore, potentially value-enhancing capex measures (store extensions, adding retail units) have been identified as well as 10 assets which are ready to be sold.

The collateral is currently 93% occupied. Like Mansford OBI, the loan is benefiting from a floating interest rate in a low-rate environment. This allowed the repayment of EUR13m since the default. Nevertheless, Fitch expects a significant loss as the loan-to-value (LTV) ratio stands at 139%, based on a 2013 revaluation.

The EUR75.5m Freiburg loan remains current and will mature in April 2015. Surplus income has been used to amortise the facility since July 2012 (in line with the loan maturity), although the fixed interest rate (at 5.4x) limits the benefits of the cash sweep. The borrower has announced that it is in refinancing negotiations. Failing that, Fitch believes that a floating rate after maturity will help improve the exit position of the loan sufficiently for a full repayment. The loan is secured on a shopping centre and a retail asset located in Freiburg, both near fully let.

The smallest loan, EUR11.8m Plus Retail, has been in default since its maturity in 2012. Substantial works on the largest of the five underlying asset (including lease extensions, removal of defaulted tenants and reletting) improved the collateral value, although with an LTV of 137.8% (down from 149.4% 12 months ago) an ultimate loss remains likely. The application of trapped surplus rent towards further value enhancing measures or loan redemption partially mitigates the high leverage.

RATING SENSITIVITIES
Should the Freiburg loan remain outstanding past its maturity, the senior notes may become subject to rating caps within 18 to 24 months prior to bond maturity. Recoveries below Fitch's expectations on any of the loans may put downward pressure on the class C and D notes.

Fitch estimates 'Bsf' recoveries of approximately EUR234m.