OREANDA-NEWS. Fitch Ratings has affirmed Broadgate Financing PLC, a securitisation of long term debt financing of 14 clustered office buildings in the City of London. The securitised properties are all part of the Broadgate estate and provide approximately 376,000sq m of prime office as well as some 24,000sq m of retail space.

KEY RATING DRIVERS
Strong Re-Letting Activity
Vacant space has been reduced further, decreasing to 0.7% as of end-March 2015 from 3.2% at end-March 2014. This takes into consideration space to be vacated by a tenant under administration at 201 Bishopsgate. In Fitch's view, this reflects both the overall market environment in the City of London, characterised by strong demand and limited supply, as well as the active property management.

We believe on-going investment contributed to the drop in vacancy. This can be seen at the recently refurbished and, after expected completion of the lease with WeWork, fully-let office property at 199 Bishopsgate. Continuous investment is generally seen by Fitch as credit-positive but also necessary to preserve the appeal of the estate. This is particularly true in coming years when we expect the current shortage of office supply to gradually level off as new high-spec space comes onto the market.

Lease roll-off risk is visible in 2016-17 when UBS has break options on 1-2 Finsbury Avenue and 100 Liverpool Street. Given the prime quality of the collateral and the strength of the borrower, Fitch does not expect a medium-term increase in vacancy.

Delivery of Crossrail 1, scheduled for 2018, will enhance demand from occupiers, and offers long-term support to ratings.

Sound Portfolio Metrics
Interest coverage and debt service coverage as at March 2015 are at a healthy 2.0x and 1.2x respectively, supported by the expiry of rent-free periods. The re-letting undertaken over the previous 12 months will help offset loss of portfolio income from the expiring UBS lease over the next two years.

The collateral was externally revalued at GBP3.1bn in March 2015, up from GBP2.9bn in March 2014, putting the current loan-to-value at 55%.

Potential Commingling Risk
The account bank, National Westminster Bank Plc (BBB+/Stable/F2), has not been replaced after its downgrade on 19 May 2015. This is despite respective provisions in the transaction documents requiring a guarantee or finding a suitable replacement. Fitch understands from discussions with the bond trustee, Capita Asset Services, that remedial options are currently being reviewed.

Fitch has assessed the impact on the rating of the notes from a potential commingling of rental income - and hence note amortisation - receipts and found this to be limited.

For notes rated 'BBB-sf', Fitch considers a commingling scenario as sufficiently unlikely given the current rating of the account bank.
For higher-rated notes, recovery proceeds in the respective rating scenarios would still be sufficient for repayment in full of the notes. As the transaction features ample undrawn liquidity in the form of a standby drawing - amounting to GBP185m - held at a bank in line with standards of Fitch's counterparty criteria, payment interruption risk is mitigated.

Fitch estimates 'Bsf' market value of the properties at GBP2.4bn.

RATING SENSITIVITIES
Most of the tenants in the portfolio are in the financial and professional services industry. Shock to global banking would affect a significant number of the tenants, whose credit strength is instrumental to the continued deleveraging of the transaction.

Evidence that re-letting of the UBS space, which accounts for more than 20% of total lettable space, is more challenging than expected may also impact the rating of the notes. This is particularly true if it coincides with the financial industry being under stress.

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 transaction's 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.
-Rent-rolls provided by the asset manager as at end-March 2015
-Transaction reporting provided by trustee as at end-April 2015

Fitch has affirmed the following ratings:

GBP201.1m class A1 due January 2032 (XS0213092066) affirmed at 'AAAsf'; Outlook Stable
GBP232.6m class A2 due April 2031 (XS0211897664) affirmed at 'AAAsf'; Outlook Stable
GBP175m class A3 due April 2033 (XS0211897821) affirmed at 'AAAsf'; Outlook Stable
GBP400m class A4 due July 2036 (XS0213092652) affirmed at 'AAAsf'; Outlook Stable
GBP365m class B due October 2033 (XS0211898043) affirmed at 'AAsf'; Outlook Stable
GBP93m class C1 due January 2022 (XS0213093031) affirmed at 'BBB-sf'; Outlook Stable
GBP212.1m class C2 due April 2035 (XS0211898126) affirmed at 'BBB-sf'; Outlook Stable
GBP25.5m class D due October 2025 (XS0213093627) affirmed at 'BBB-sf'; Outlook Stable