OREANDA-NEWS. Fitch Ratings has assigned Antares 2015-1 PLC expected ratings as follows:

EUR130.46m Class A due December 2026: 'A(EXP)sf'; Outlook Stable
EUR40.5m Class B due December 2026: 'BBB-(EXP)sf'; Outlook Stable

The transaction is a securitisation of a 95% participation in a GBP180.1m commercial mortgage loan originally granted by the Royal Bank of Scotland PLC to a family of nine borrowers ultimately owned by Kennedy Wilson Real Estate plc (KWERE, the sponsor). The loan was used to refinance the Fordgate portfolio of office, retail and leisure properties located throughout the UK. Three of the 21 properties originally purchased by KWERE have been sold in line with the sponsor's business plan to sell down the portfolio over time.

KEY RATING DRIVERS
The expected ratings are based on Fitch's assessment of the underlying collateral, available credit enhancement and the transaction's legal structure.

The collateral constitutes a mainly secondary/tertiary quality property portfolio, sold in July 2014 by receivers appointed under the (previously securitised) distressed Fordgate loan. 44% of the collateral consists of Aberdeen offices for firms working in North Sea oil and gas. The past few months have seen a dramatic fall in oil prices, squeezing profitability, especially for firms operating in fields with high extraction costs, such as the North Sea. While eventual decommissioning should sustain high value engineering activity in the North Sea for many years, and the government has announced some fiscal relief for the sector, this may not support Aberdeen office occupational demand at rents even close to their present highs.

As such, Fitch has reset market rents significantly down in all its scenarios, in line with evidence from other Scottish office markets. The greater volatility of weaker quality commercial property is mitigated by moderate leverage (day one debt yield of 13.3%) and effective financial covenants (75% LTV covenant supported by annual revaluations and a 1.5x forward-looking interest coverage ratio covenant supplemented by a 1.75x amortisation trigger).

For a small number of more resilient assets, the release amounts specified in the loan (for property disposal) fall short of Fitch's recovery proceeds. In view of the possibility of disposals, Fitch has capped any credit to 'BBB-sf' recoveries at the release amount. Moreover, with release amounts applied on a modified pro rata basis, wherever a voluntary sale would lead to materially less class A principal being repaid, Fitch has capped credit to 'Asf' recoveries at a level consistent with applying the 50% sequential/50% pro rata rules.

Rather than a liquidity facility, the transaction benefits from two reserve accounts (neither funded at closing). If the loan is in breach of a financial covenant, excess rent is used to deleverage the loan, with the first GBP1m reserved by the security agent in the default deposit account rather than distributed to noteholders. If the loan is subsequently accelerated, amounts credited to this account are paid into the issuer's liquidity reserve account. Amount can be drawn from this to cover senior interest shortfalls. The issuer also retains all excess spread in a surplus reserve fund to cover any shortfalls in its interest waterfall.

A predominantly secondary quality portfolio with industry, geographic and tenant concentration, a modified pro-rata principal pay-down structure, more relaxed counterparty replacement triggers and a cash-trapping mechanism instead of a liquidity facility all contribute to a rating cap in the 'Asf' category.

KEY PROPERTY ASSUMPTIONS (average weighted by expected rental value)
'Bsf' capitalisation (cap) rate: 6.75%
'Bsf' structural vacancy: 23.2%
'Bsf' rental value decline: 2.4%

'BBBsf' cap rate: 7.9%
'BBBsf' structural vacancy: 29.9%
'BBBsf' rental value decline: 9.7%

'Asf' cap rate: 8.7%
'Asf' structural vacancy: 33.2%
'Asf' rental value decline: 14.3%

RATING SENSITIVITIES
Fitch tested the rating sensitivity of the class A to D notes to various scenarios, including steeper rental value declines, increasing capitalisation rates and rising structural vacancy. The expected impact on the notes' ratings is as follows:

Class A
Current Rating: 'Asf'
Deterioration in all factors by 1.1x: 'A-sf'
Deterioration in all factors by 1.2x: 'BBBsf'

Class B
Current Rating: 'BBB-sf'
Deterioration in all factors by 1.1x: 'BB+sf'
Deterioration in all factors by 1.2x: 'Bsf'.