OREANDA-NEWS. Fitch Ratings has downgraded EuroProp (EMC-VI) S.A.'s floating rate notes due 2017 as follows:

EUR129.5m class A (XS0301901657) downgraded to 'Bsf' from 'BBsf'; Outlook Negative
EUR30m class B (XS0301902622) downgraded to 'CCCsf' from 'Bsf'; Recovery Estimate (RE) 10%
EUR35m class C (XS0301903356) downgraded to 'CCsf' from 'CCCsf'; RE0%
EUR30m class D (XS0301903513) affirmed at 'CCsf'; RE0%
EUR4m class E (XS0301903943) affirmed at 'Csf'; RE0%
EUR6.6m class F (XS0301904248) affirmed at 'Csf'; RE0%

The transaction is a securitisation of 18 commercial mortgage loans originated by Citibank, N.A., London Branch and Citibank International PLC. Six of the original 18 loans have repaid in full since closing in 2007, with a further three incurring losses of EUR6.6m.

KEY RATING DRIVERS
The downgrades reflect the lower than expected recoveries on a number of the loans and the increased risk of an extension to the safeguard proceedings, in excess of legal final maturity in April 2017, for the Signac loan. All nine remaining loans are in payment default - primarily caused by excess leverage on generally below-average mainly German retail real estate - with better progress on some loans compensated by work-out delays or weakening metrics on others. In view of the notes' maturity in 2017, the servicer's challenge will be to swiftly liquidate the collateral without dampening the sale price, which is a key rating constraint.

The EUR167m Sunrise II loan (of which 50% is securitised in this transaction) is secured by 38 retail/retail warehouse assets located predominantly in secondary western German locations. Sales progress has been made, with eight property sales occurring in the last 12 months in conjunction with a significant number of properties that are either notarised (six properties) or are in the due diligence process (20 properties). Fitch expects the level of losses to be broadly in line with indications that the aggregate gross sale price of completed and notarised sales is around 75% of the allocated loan amount (ALA). As the portfolio sells down, there is an increased risk that the remaining properties will have greater value declines versus the ALA.

The EUR48.3m Signac loan is secured by a five-storey office building located in Gennevilliers, Paris. Originally due to repay in July 2011, the borrower obtained safeguard proceedings. The safeguard proceedings that were put in place in June 2012 were due to result in a sale of the asset and loan repayment by June 2015. As per the May surveillance report, as the occupancy (90%) and market value (EUR72m) thresholds were not met, the borrower declined to market the property for sale. The borrower has also requested an extension of the safeguard plan for a further three years to June 2018, past legal final maturity.

The lack of control by the special servicer presents downside risk to the ratings, as reflected in the downgrades and Negative Outlooks, with a significant risk that a recovery may not be made by bond maturity. This loan also remains the subject of a dispute between the loan seller and the special servicer over the validity of certain warranties related to the sale.

Fitch expects varying loss severities on a further seven loans, and projects a write-off of note classes C through F. A principal deficiency ledger (PDL), highly unusual in European CMBS, allows principal shortfalls to be replenished from excess spread (in this case mainly composed of pooled loan default penalty interest). Of the EUR6.6m of cumulative loss applied to the class F PDL, some EUR5.7m has already been replenished from excess spread.

Further replenishment of principal deficiencies depends on the timing of losses, the most significant being approximately EUR15m of inevitable loss on EPIC Horse (a loan incurring an 80% loss severity). The last remaining property from this portfolio has now been sold, with funds to be distributed in July 2015.

RATING SENSITIVITIES
Given the large number of assets that need to be sold and uncertainty surrounding the loan in safeguard, the approach of legal maturity in 2017 presents the main source of rating sensitivity, which remains on the downside. The later the workouts are resolved, the greater the risk of price discounting.

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.
-Loan-by-loan data provided by the servicer at end-April 2015
-Transaction reporting provided by the servicer at end-April 2015
-Loan enforcement details provided by the servicer at end-April 2015