OREANDA-NEWS. Fitch Ratings has affirmed Vulcan (European Loan Conduit No. 28) Ltd's commercial mortgage-backed floating rate notes due May 2017, as follows:

EUR47.4m class A (XS0314738963): affirmed at 'BBsf'; Outlook Stable
EUR20.6m class B (XS0314739938): affirmed at 'BBsf'; Outlook Stable
EUR73.4m class C (XS0314740431): affirmed at 'Bsf'; Outlook Stable
EUR75.2m class D (XS0314740944): affirmed at 'CCCsf'; Recovery Estimate (RE) revised to 100% from 35%
EUR38m class E (XS0314741595): affirmed at 'Csf'; RE revised to 20% from 0%
EUR3m class F (XS0314742056): affirmed at 'Csf'; RE0%
EUR3m class G (XS0314742213): affirmed at 'Csf'; RE0%

Vulcan (European Loan Conduit No.28) is a securitisation of currently five loans backed by commercial real estate assets located across Germany and France.

KEY RATING DRIVERS
The affirmation reflects that EUR24.9m will be paid sequentially from the completed sale of the Eurocastle Office Portfolio (EOP). Moreover, the Tishman German Office Portfolio (TGOP) loan is in an improved position, as a subsidiary of Deutsche Telekom AG (BBB+/Stable) has signed a new 10-year lease for the bulk of the space. Fitch understands that subject to completion of a capex programme, there is credible buyer interest in the asset, which along with the H&B Retail Portfolio 2 restructuring, has driven the revisions of the REs.

The TGOP loan, now EUR126.5m in size (54% of aggregate loan balance), is secured by a single office property located in a decentralised Frankfurt business park generating EUR8.1m of net operating income per year. Fitch expects the sale and purchase agreement signed in August 2015 to be honoured, given that development works are expected to complete in March 2016, allowing the loan to repay in full.

The EUR63.2m Beacon Doublon Paris loan (27% of the pool) is secured by a single office property located in Courbevoie, Paris, near to the La Defense financial district. After filing for safeguard proceedings in 2011, the borrower now has creditor protection until the end of the month. With a withdrawal of the most compelling bid, there is a risk of a further extension being granted by the courts, in Fitch's view.

Nevertheless, low interest rates have allowed some deleveraging from the original EUR73.5m balance, although vacancy is set to rise from its current 32% in the coming months. This implies considerable scope for asset management in terms of lease re-gearing and potential refurbishment in order to enhance property value to repay the senior loan in full. The safeguard process may enable this, but potentially at the cost of a failure to return loan capital by bond maturity in May 2017.

The EUR20.6m H&B Retail Portfolio 2 loan (8.8% of the pool) is secured by 14 multi-let retail warehouses in regional Germany (split across west and east). The loan has been recently restructured, with maturity extended subject to a new sponsor providing evidence of its ability to pay down the loan by a minimum of EUR7.4m prior to the May interest payment date. A second extension until February 2017 is predicated on further repayments. Fitch sees potential for substantial recoveries, if not by bond maturity.

As several of the loans require asset management initiatives and/or piecemeal disposal plans to maximise recoveries, the time left until bond maturity is a factor in the distressed rating of the class D notes, which Fitch now expects to recover in full eventually. The rating of the senior notes is constrained below investment grade by similar risks around delays.

Fitch's estimated 'Bsf' recovery amount is EUR225m (but not by bond maturity).

RATING SENSITIVITIES
A failure of the TGOP loan to generate substantial proceeds over the coming payment dates may result in a downgrade of the senior tranches. Delays in business plans or weakening in demand for non-prime real estate could also put downwards pressure on REs.

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.
- Loan-by-loan data provided by Mount Street LLP as at 16 November 2015
- Transaction reporting provided by Mount Street LLP as at 16 November 2015
- Special Notices provided by Mount Street LLP as at 11 February 2016