Fitch Affirms Taurus CMBS (UK) 2006-2 plc; Outlook Stable
GBP111.7m class A (XS0271522103) affirmed at 'BBsf' Outlook Stable
GBP18.6m class B (XS0271523259) affirmed at 'Dsf', Recovery Estimate (RE) 80%
GBP0m class C (XS0271523846) affirmed at 'Dsf'; RE0%
GBP0m class D (XS0271524653) affirmed at 'Dsf'; RE0%
The transaction closed in 2006 and was originally a securitisation of eight commercial mortgage loans with an aggregate loan balance of GBP447.67m. The collateral comprised 157 properties located throughout England, Scotland, Wales and Northern Ireland.
KEY RATING DRIVERS
The affirmation is driven by the overall stable performance of the Mapeley STEPS loan and by the repayment in full of the Dundee loan.
Since Fitch's last rating action in January 2015, the Mapeley STEPS loan repaid by GBP3.5m (GBP2.9m of net disposal proceeds and GBP548,000 of cash sweep). The interest coverage ratio (ICR) has decreased to 1.42x currently from 3.5x at the January 2015 interest payment date (IPD), although this reported measure is skewed by disposal proceeds, which were high during 2H14. Fitch understands that interest coverage relies not only on underlying contract and related income, but also on Mapeley's management of vacated properties, including timing of refurbishment and subsequent sale.
Following the disposal of seven vacated assets in the last 21 months, the freehold collateral comprises 77 properties (predominantly offices). Apart from a small number of properties vacated, these freehold properties are occupied by HM Revenue and Customs, a UK government entity rated 'AA+'/Stable.
This arrangement is subject to a service contract expiring in April 2021, under which for an upfront payment of GBP220m, HMRC transferred the ownership and management of most of its freehold estate to Mapeley as well as rental liabilities arising from other leased space. In exchange, Mapeley negotiated for itself a 20-year stream of income (not rent) from HMRC, as well as the future vacant possession value (VPV) of the freehold portfolio.
Broadly speaking, the securitised loan is serviced from the spread between these two legs of the contract as well as any net disposal income from vacated space. While this means that interest coverage is variable, Mapeley has been able to meet debt service since 2001 under similar conditions, including by disposing of vacated assets. With current loan to VPV of 68%, Fitch believes Mapeley is motivated by its equity in the VPV (the bulk of which it can only realise in 2021) to continue to manage its operations to meet debt service, supporting today's affirmation.
RATING SENSITIVITIES
If the loan defaults during its term, and while Fitch does not expect this to automatically lead to the termination of the contract, accumulation of unpaid interest alongside swap breakage costs could increase LTVPV in 2021 to a level that is not consistent with the ratings, and therefore prompt a downgrade.
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 and together with the assumptions referred to above, 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.
-Servicer reporting provided by Capita Asset Services Ireland Ltd as of the October 2015 IPD
-Cash manager reports as of the October 2015 IPD.
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