OREANDA-NEWS. March 23, 2015. Fitch Ratings has upgraded DECO 14 - Pan Europe 5 B.V. (DECO 14)'s class A-2 and A-3 floating-rate notes due 2020 and affirmed the remaining tranches as follows:

EUR82.9m class A-2 (XS0292121802) upgraded to 'AA+sf' from 'AAsf'; Outlook Stable
EUR64.6m class A-3 (XS0292122289) upgraded to 'Asf' from 'A-sf'; Outlook Stable
EUR99.4m class B (XS0291365137) affirmed at 'BBsf'; Outlook revised to Stable from Negative
EUR64.6m class C (XS0291365566) affirmed at 'Bsf'; Outlook Negative
EUR100.8m class D (XS0291367182) affirmed at 'CCsf'; Recovery Estimate (RE) 30%
EUR25.8m class E (XS0291367422) affirmed at 'Csf'; RE 0%
EUR11.9m class F (XS0291368156) affirmed at 'Csf'; RE 0%

The transaction is a securitisation of originally 11 commercial real estate loans originated by Deutsche Bank AG (rated A+/Stable), including one jointly with Lehman Commercial Paper Inc. In March 2015, seven loans remained, with collateral in Italy, Germany and Bulgaria.

KEY RATING DRIVERS
The upgrades and Outlook revision reflect the full repayment of the EUR127.1m Puma MF loan and sequential principal allocation. While Fitch expected no losses in a 'Bsf' scenario, recoveries have exceeded expectations in higher stress scenarios. The affirmation of the class B to F notes reflects our largely unchanged recovery expectations on the six defaulted loans, all of which have now passed their maturities. The Negative Outlook on class C reflects potential protracted workouts of defaulted loans.

The largest remaining loan, EUR126.7m Armilla Clarice 2, remains in primary servicing and is scheduled to mature in October 2016. It is secured on 14 office properties located in various Italian cities. The assets are fully let to Telecom Italia SPA (rated BBB-/Negative), with a weighted average remaining lease term (WARLT) of 6.9 years. There has been no revaluation since closing in 2006 and Fitch estimates the loan to value (LTV) in excess of the reported 52.3% (at approximately 80%).

Despite fixed interest payments, the interest coverage ratio was reported at a healthy 2.8x in January 2015. Given the sound asset performance and lease profile, a full loan repayment is expected, by maturity or thereafter.

The EUR105.1m Arcadia loan has been in special servicing since 2010 and switched to floating rate interest at maturity in January 2014. One of the 24 German mixed-use properties securing the loan was sold in January 2015 and the principal will be allocated to the notes in April 2015. Seven more properties had sales and purchase agreements notarised. The agreed cumulative sales prices exceeded the 2013 values by approximately 9%. However, due to a reported LTV of 212.4%, Fitch expects a significant loss.

The EUR94.5m CGG - Tambelle REDO 3 loan has entered preliminary insolvency proceedings and all borrower accounts have been blocked by the administrator until the opening of final proceedings. However, the loan benefits from a EUR3.1m reserve account; and one of the 14 underlying German mixed-use properties has been sold. The sales proceeds marginally exceeded the 2014 valuation. The most recent ICR stood high at 6.2x on the floating-rate (senior) loan, despite a low occupancy rate at 65%. With a senior LTV of 122.7%, Fitch expects a moderate loss.

The EUR49m Sofia Business Park loan was previously restructured and extended until October 2015. However, the borrower did not meet certain conditions which triggered another loan default and a transfer into special servicing. The collateral comprises 11 assets located in Sofia, Bulgaria. Almost 30% of the rent is derived from Hewlett Packard (rated A-/RWN) and the assets are fully let, although on a fairly short weighed average lease term (WALT 4.4 years).

Fitch estimates the senior LTV above the reported 54.4% (based on a 2012 valuation). The prospect of full senior repayment could be improved by lease re-gearing but may also depend on investor appetite.

The collateral for the EUR39.6m Cottbus Shopping Centre loan is 99% let and tenant Kaufland accounts for 95% of the rent (although its space is partly sublet). The WALT is short at 1.25 years. While no updated valuation has been announced yet (the loan defaulted in January 2015), Fitch believes that no equity remains. The agency expects a moderate ultimate loss, although the recent switch to floating interest payments improves the cash trap/sweep; and lease re-gearing would affect recovery prospects positively.

The EUR44m Mansford Nord Bayern loan is secured on 22 retail assets located in Germany. The assets are fully let to EDEKA and Netto (part of the same group) which account for 71.4% and 28.6% of the rent, respectively. The WARLT was reported at 5 years in January 2015. The loan is in standstill until July 2015; and the special servicer is in discussion with the tenants regarding possible lease extensions. Despite a 6.8x ICR, Fitch expects a significant loss on the highly leveraged (162.6% LTV) loan.

The collateral formerly securing the DD Karstad Hilden loan has been sold via auction and EUR2.2m of proceeds have been allocated to the notes. The remaining funds (around EUR0.3m) have been reserved for costs/ expenses by the special servicer. Any surplus, including final recoveries received from involved courts, will be passed on to the noteholders before the final loss on the remaining EUR2.9m balance is determined.

Fitch estimates 'B' recoveries of EUR348m.

RATING SENSITIVITIES
Protracted workouts and recoveries below Fitch's 'Bsf' expectations could affect the class C and D ratings and their recovery estimates.

Updated surveillance data can be found at:
https://www.fitchratings.com/creditdesk/sectors/perf_analytics/esf/deal_summ/download_file.cfm?deal_id=87148302