OREANDA-NEWS. Fitch Ratings has downgraded DECO 8 - UK Conduit 2 plc's (DECO 8) class A2-D floating rate notes and affirmed the others as follows:

GBP61.5m class A1 (XS0251885603) due April 2018 affirmed at 'AAsf'; Outlook Stable
GBP255.8m class A2 (XS0251886163) due April 2018 downgraded to 'CCsf' from 'CCCsf'; Recovery Estimate (RE) 80%
GBP32.3m class B (XS0251886833) due 2036 downgraded to 'CCsf' from 'CCCsf'; RE 0%
GBP33.9m class C (XS0251887211) due 2036 downgraded to 'Csf' from 'CCsf'; RE0%
GBP23.4m class D (XS0251887724) due 2036 downgraded to 'Csf' from 'CCsf'; RE0%
GBP60.9m class E (XS0251889696) due 2036 affirmed at 'Csf'; RE0%
GBP14.2m class F (XS0251890199) due 2036 affirmed at 'Csf'; RE0%
GBP2.7m class G (XS0251890868) due 2036 affirmed at 'Dsf'; RE0%

DECO 8 was originally a securitisation of 22 UK commercial mortgage loans originated by Deutsche Bank. As of end-October 2015, eight loans remained, all in special servicing (all except Fairhold with Solutus Advisors). Of the 14 repaid loans, two were redeemed at a loss.

KEY RATING DRIVERS
The downgrades reflect the inevitable loss allocation following the proposed resolution of the Lea Valley loan. While wiping out the balance of the class C and D notes, the scale of the likely loan loss also weakens the credit quality of the class B and A2 notes, both of which are expected to default. The class A2 notes are due in April 2018, and the high loss severity from the Lea Valley loan makes redemption more reliant on the resolution of both the Mapeley and Fairhold loans being adequate and prompt. The class A1 notes will be repaid in full from the Lea Valley proceeds, underpinning the affirmation of this class.

The GBP210.5m Lea Valley loan entered special servicing in April once the borrower indicated it would shortly be in financial difficulty owing to the poor condition of the collateral and adverse prospects for net rental income and value. This, including a reported loan-to-value (LTV) above 200%, was communicated to investors. The borrower's discounted pay offer of GBP90m, being marginally above the current valuation and reducing execution risk, was accepted by the special servicer after polling investors. Net proceeds of GBP88m are expected to be applied to the notes in January 2016 or soon thereafter, representing a major write-off of GBP122.5m.

The GBP189.2m Mapeley II loan remains in special servicing as a result of an uncured LTV covenant breach. None of the 16 underlying assets has been sold to date, with the expectation that the expiry of the swap at loan maturity in April 2016 should maximise recoveries. Fitch assumes a moderate loss, given the reported LTV of 99% based on a 2015 valuation and allowing for typical costs. However, should sale proceeds exceed the valuations (particularly for the largest asset, the Microsoft campus in Reading), full redemption remains possible.

The GBP60m Fairhold loan has been in special servicing since its default on maturity in 2013. The special servicer is discussing possible exit strategies with the borrower. The existence of a long-dated issuer swap (maturing days before the maturity of the junior classes of notes in 2036) represents significant senior ranking leverage, and creates uncertainty in estimating workout timing despite the long-term low-risk ground rental income stream underpinning the loan.

The five smaller loans (GB15.2m Rowan UK Commercial Property, GBP4.7m Elbank, GBP3.7 MPH (UK), GBP0.6m Swiftgold and GBP1.9m Braeside) are in various stages of drawn-out special servicing. The length of workout - averaging 4.3 years - is long for UK loans. All loans are highly leveraged and expected to suffer significant losses.

RATING SENSITIVITIES
Recoveries on Mapeley II exceeding Fitch's expectations may result in the revision of the recovery estimate for the class A2 notes.

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.