OREANDA-NEWS. December 15, 2015. Fitch Ratings has upgraded Indus (Eclipse 2007-1) plc's class B floating rate notes due 2020 and affirmed the rest as follows:

GBP5.5m class B (XS0294757173) upgraded to 'Asf' from 'Bsf'; Outlook Stable
GBP50m class C (XS0294757256) affirmed at 'Dsf'; Recovery Estimate (RE) revised to 80% from 50%
GBP0m class D (XS0294757504) affirmed at 'Dsf'; RE0%
GBP0m class E (XS0294757686) affirmed at 'Dsf'; RE0%

The transaction was originally a securitisation of 18 commercial loans originated by Barclays Bank plc (A/Stable) and one loan originated by Bank of Scotland (A+/Stable). Eighteen loans have repaid since closing in 2007, including six with losses, affecting the class C, D and E notes. The total loan balance has been reduced to GBP55.4m in October 2015 from GBP894m originally.

KEY RATING DRIVERS
The upgrade of the class B notes and the revised RE on the class C notes reflect that the resolution of four loans has resulted in proceeds exceeding Fitch's expectations as of the last rating action in December 2015. The rating actions also reflect the stable occupational performance of the collateral for the sole remaining loan, NOS 2 LTD and NOS 3 LTD (balance GBP55.8m). The class B rating reflects that its high debt yield is balanced by the lack of detailed information on the properties in the pool, many of which have not been revalued since closing in 2007.

The loan, which is in primary servicing, is due in January 2017. It has repaid by 40% since closing, via asset sales and a one-off GBP10m equity injection following a change of control in 2014. The collateral consists of 225 mixed-use commercial properties located in the UK, with approximately half in East Anglia, South East and South West England. The vacancy rate had risen to 25% as at July, compared with 19.5% a year ago and 10% at closing.

The reported loan-to-value of 48% is based on the original valuation for most remaining assets and on a 2012 re-valuation for the rest. Despite its fixed rate of interest (reflecting higher legacy swap rates) and 25% vacancy, the loan still has an interest coverage ratio of 2x. In case the loan defaults the issuer can draw on GBP5m in a liquidity facility. Fitch expects a moderate loss in case the loan defaults at maturity.

RATING SENSITIVITIES
Should the loan default at maturity and remain outstanding beyond July 2018, the class B notes would likely be downgraded given the risk of the loan workout lasting longer than 18 months. Fitch applies a 'BBBsf' rating cap in such circumstances.

Fitch estimates 'Bsf' proceeds of approximately GBP45m.

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.
Quarterly cash manager reports by Bank of New York Mellon
Quarterly investor reports by Capita Asset Servicing