OREANDA-NEWS. Fitch Ratings has assigned expected ratings to REITALY Finance S.r.l's classes A1 and A2 notes and affirmed the expected ratings for all other classes as follows:

EUR70m class A1: assigned 'A+(EXP)sf'; Outlook Stable
EUR39.3m class A2: assigned 'A(EXP)sf'; Outlook Stable
EUR0.2m class X1: not rated
EUR0.1m class X2: not rated
EUR33.3m class B: affirmed at 'BBB(EXP)sf'; Outlook Stable
EUR12.4m class C: affirmed at 'BBB-(EXP)sf'; Outlook Stable
EUR17.7m class D: affirmed at 'BB(EXP)sf'; Outlook Stable
EUR9.25m class E: affirmed at 'BB-(EXP)sf'; Outlook Stable

The assigned expected ratings on the class A1 and A2 notes replace the expected rating of the class A notes published on 3 June 2015. The amended transaction sees the former EUR109.3m class A notes split into two tranches: EUR70m class A1 and EUR39.3m class A2. The class A1 and A2 notes rank pari passu until the earlier of loan maturity, the transfer of the loan to special servicing or an enforcement of the note security after which the class A1 ranks senior. There are no other changes to the structure.

The transaction is a securitisation of a single EUR191.5m commercial real estate loan advanced by Goldman Sachs International Bank (GS) to an Italian fund, which is secured by a portfolio of 25 Italian real estate assets. GS has retained 5% of the loan.

The collateral falls into five sub-portfolios: (i) five large retail assets with exposure to a cinema operator; (ii) five cash-and-carry assets; (iii) three retail galleries (anchored by supermarkets that are not owned by the fund and so outside of the security package); (iv) five retail boxes; and (v) seven smaller retail units.

The assignment of the final rating is contingent on the receipt of final documents conforming to information already received.

KEY RATING DRIVERS

High-Risk Leisure Exposure
Over half the portfolio value comprises centres which are either entirely turned over to, or else anchored by, tenants in the entertainment sector. Fitch considers the risk profile of leisure to be higher than retail, as the financial performance of the former is subject to macroeconomic stress and underlying consumer behaviour is more discretionary and may be influenced by changing tastes and technology; re-fitting former leisure space to appeal to retailers may also prove challenging.

Varying Property Quality
Although the property portfolio is underpinned by several large, well-located and sound quality assets, there is also some exposure to highly over-rented properties as well as secondary/tertiary assets that are dilapidated and in need of repair work. The weaker assets in the pool offer little in the way of recovery in Fitch's investment-grade stress scenarios.

Re-letting Risk Present
Almost half of the contracted rental income expires by loan maturity in 2020. The asset manager may therefore struggle to stabilise the lease profile over time and cash trap mechanisms, triggered by declining lease terms, also provide the incentive for such stabilisation to occur in the shorter term. While there is a risk of slower demand for the underlying properties over time, the threat of new supply from development activity is mitigated by current property values being (in aggregate) 30% less than the reinstatement (construction) value.

Loan Level Weaknesses
The lack of borrower obligation to indemnify the lender for enforcement costs can lead to a loss on the junior notes, should trapped default interest not cover all liquidation costs. Additionally the notes are exposed to commingling risk (a loss of periodic loan debt service funds held on account). As the borrower's account bank is not rated Fitch assumes it defaults in all rating scenarios.

KEY PROPERTY ASSUMPTIONS (all by net rent)
'Bsf' weighted average (WA) capitalisation (cap) rate: 7.7%
'Bsf' WA structural vacancy: 22.3%
'Bsf' WA rental value decline: 3.4%

'BBsf' WA cap rate: 8.3%
'BBsf' WA structural vacancy: 25.5%
'BBsf' WA rental value decline: 6.1%

'BBBsf' WA cap rate: 8.9%
'BBBsf' WA structural vacancy: 28.6%
'BBBsf' WA rental value decline: 9.3%

'Asf' WA cap rate: 9.5%
'Asf' WA structural vacancy: 31.8%
'Asf' WA rental value decline: 14.9%

RATING SENSITIVITIES

The change in model output that would apply if the capitalisation rate assumption for each property is increased or decreased by a relative amount is as follows:

Current ratings class A1/ A2/ B/ C/ D/ E: 'A+(EXP)sf'/'A(EXP)sf'/ 'BBB(EXP)sf'/'BBB-(EXP)sf'/ 'BB(EXP)sf'/'BB-(EXP)sf'
Increase capitalisation rates by 10% class A1/ A2/ B/ C/ D/ E: 'A+(EXP)sf'/ 'BBB+(EXP)sf'/ 'BB(EXP)sf'/'BB-(EXP)sf'/ 'B(EXP)sf'/ 'B(EXP)sf'
Increase capitalisation rates by 20% class A1/ A2/ B/ C/ D/ E: 'A+(EXP)sf'/ 'BBB(EXP)sf'/ 'BB-(EXP)sf'/ 'B(EXP)sf'/ 'CCC(EXP)sf'/ 'CCC(EXP)sf'

The change in model output that would apply if the rental value decline and vacancy assumption for each property is increased or decreased by a relative amount is as follows:

Increase rental value decline and vacancy by 10% class A1/ A2/ B/ C/ D/ E: 'A+(EXP)sf'/ 'BBB+(EXP)sf'/ 'BB+(EXP)sf'/ 'BB-(EXP)sf'/ 'B+(EXP)sf'/ 'B+(EXP)sf'
Increase rental value decline and vacancy by 20% class A1/ A2/ B/ C/ D/ E: 'A+(EXP)sf' / 'BBB(EXP)sf'/ 'BB(EXP)sf'/ 'BB-(EXP)sf'/ 'B(EXP)sf'/ 'CCC(EXP)sf'

The change in model output that would apply if the capitalisation rate, rental value decline and vacancy assumptions for each property is increased or decreased by a relative amount is as follows:

Deterioration in all factors by 10% class A1/ A2/ B/ C/ D/ E: 'A+(EXP)sf'/ 'BBB-(EXP)sf'/ 'B+(EXP)sf'/ 'B(EXP)sf' / 'CCC(EXP)sf'/ 'CCC(EXP)sf'
Deterioration in all factors by 20% class A1/ A2/ B/ C/ D/ E: 'A(EXP)sf'/ 'BB+(EXP)sf'/ 'B(EXP)sf'/ 'CCC(EXP)sf'/ 'CCC(EXP)sf'/ 'CCC(EXP)sf'

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY

Fitch received a third party assessment conducted on the asset portfolio information.

Overall, Fitch's assessment of the asset pool 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.
-Facility agreement provided by the originator at end-March 2015
-On-site visit of properties conducted by the agency's analysts at end-April 2015

REPRESENTATIONS AND WARRANTIES

A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms to those typical for the asset class is available by accessing the appendix that accompanies the initial new issue report (see REITALY S.r.l. - Appendix, dated x June 2015 and available at www.fitchratings.com). In addition please refer to the special report "Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions" dated 26 March 2015 available on the Fitch website.