OREANDA-NEWS. February 08, 2016. Fitch Ratings has upgraded DECO 12 - UK 4 p.l.c's class C notes due 2020 and affirmed the others, as follows:

GBP174.0m class A1 (XS0289644121) affirmed at 'BB+sf'; Outlook Negative
GBP113.6m class A2 (XS0289644477) affirmed at 'BB+sf'; Outlook Negative
GBP34.6m class B (XS0289644550) affirmed at 'BB+sf'; Outlook Negative
GBP27.7m class C (XS0289644634) upgraded to 'BBsf' from 'Bsf'; Outlook Stable
GBP8.5m class D (XS0289644717) affirmed at 'Dsf'; Recovery Estimate (RE) 80%
GBP0m class E (XS0289644808) affirmed at 'Dsf'; RE 0%
GBP0m class F (XS0289644980) affirmed at 'Dsf'; RE 0%

The transaction is a securitisation of originally 10 UK loans originated by Deutsche Bank AG, with a cumulative balance of GBP672.9m secured by 41 properties. Since closing in March 2007, four loans have been repaid in full (Merry Hill, Quattro Syndicate, Hiltongrove portfolio, Chesterton Commercial loan) and another four loans have suffered losses (LMM, Industrial Realisation, Group 7 loan and Borehamwood). The transaction is now backed by two loans with a cumulative balance of GBP358.4m.

KEY RATING DRIVERS
The affirmations reflect the stable performance of the Tesco loan. The notes' ratings have been capped at Tesco plc's Issuer Default Rating (IDR; BB+/Negative) given the reliance of collateral value (and therefore proceeds) on lease income. The upgrade of the class C notes reflects the higher than expected recovery from the now resolved Borehamwood loan.

The performing Tesco loan accounts for 97% of the remaining transaction balance. It is interest-only, due in January 2017 and secured on 12 Tesco Superstores and four Tesco Extra format stores across the UK, with a concentration in the South East. For its analysis, Fitch assumes the retailer's leases run until 2026 (we understand that a break option in December 2016 can be exercised only if the borrower (a joint-venture controlled by Tesco) simultaneously repays the loan in full.

Fitch downgraded Tesco plc to 'BB+'/Negative from 'BBB-'/Negative in April 2015. The downgrade reflected a weakening outlook for the group's near term profitability in its core UK operations relative to our prior expectations as the company implements its wide-ranging turnaround plan, which has started to support volume and market share gains in the UK.

The GBP11.0m Regent Capital loan has been cash-collateralised since closing (it was originally a construction development and has failed to let up). All interest and principal amounts have been escrowed, although there is a risk of costs absorbing a small proportion of the proceeds. While both vacant, the two office buildings in county Durham that act as collateral could make up for any shortfall. Given the small size of the loan, Fitch expects any losses to be absorbed by the already 'Dsf' rated class D notes.

RATING SENSITIVITIES
Any rating action on Tesco plc's IDR would result in a corresponding action on the class A1, A2 and B notes. The class C notes could also be negatively affected given the knock-on effect on collateral value, or if the tenant is downgraded below 'BB'.

Fitch estimates 'Bsf' proceeds of GBP358.4m.

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.
-Transaction reporting provided by Situs Asset Management as at October 2015
-Transaction reporting provided by Deutsche Bank AG as at October 2015/January 2016