Fitch Upgrades Vulcan (European Loan Conduit No. 28)

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

--EUR70.0m class A (XS0314738963): upgraded to 'BBsf' from 'Bsf'; Outlook Stable

--EUR20.6m class B (XS0314739938): upgraded to 'BBsf' from 'B-sf'; Outlook Stable

--EUR73.4m class C (XS0314740431): upgraded to 'Bsf' from 'CCCsf';Outlook Stable

--EUR75.2m class D (XS0314740944): upgraded to 'CCCsf' from 'CCsf'; 'RE35%'

--EUR38m class E (XS0314741595): affirmed at 'Csf'; 'RE0%'

--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 seven loans backed by commercial real estate assets located across Germany and France.

KEY RATING DRIVERS

The upgrade of classes A through C reflects the faster-than-expected recovery from the largest loan, Tishman German Office Portfolio (TGOP), which has sold or refinanced four of the five assets in the pool allowing for EUR115m of proceeds to be sequentially allocated to the notes. This, along with the expected full repayment of three other loans (Tishman Hamburg Office loan, Jargonnant loan and the Henderson Hanau loan), has allowed the class A note to be reduced by EUR226m over the last 12 months.

The TGOP loan, now EUR129m in size (46% of aggregate loan balance), is secured by a single office property located in a decentralised Frankfurt business park predominantly let to GMG Generalmietgesellschaft mbH, (a subsidiary of Deutsche Telekom AG, which is rated 'BBB+/Stable').

The scope and scale of the on-going refurbishment and a 10 year extension of the Deutsche Telekom lease will significantly improve the property's investment value; however, Fitch still estimates losses to be incurred given the risk premium likely to be attached to secondary locations in a difficult Frankfurt office market.

The EUR66m Beacon Doublon Paris loan (23% of the pool) is the second largest loan in the pool and secured by a single office property located in Courbevoie, Paris near to the prime La Defense office precinct. After filing for safeguard proceedings in 2011, the borrower now has until December 2015 to repay. Low prevailing interest rates have allowed a previous servicer advance drawing to be repaid and some deleveraging from the original EUR73.5m balance.

Whilst well located the asset does suffer from high vacancy (32%) and a short weighted average lease term of 1.6 years which reveal the level of asset management (in terms of lease re-gearing and potential refurbishment) that would be required to enhance property value to repay the senior loan in full.

Legal final maturity (LFM) of the notes is in May 2017 providing just over two years to work out the remaining loans. Although reaching a resolution on all loans within this timeframe is achievable, many of the loans will require asset management initiatives and/or piecemeal disposal plans to maximise recoveries which will put this timeframe to the test. As such, the rating of the senior notes is constrained by the looming note maturity and precludes it from achieving investment grade status.

Fitch's estimated 'Bsf' recovery amount is EUR191m.

RATING SENSITIVITIES

A high proportion of the underlying assets which secure this CMBS still require the completion of asset management initiatives (primarily improving lease profiles and/or refurbishment) in order to prime them for sale. Should progress not be made on this front, or there is a clear weakening of demand for non-prime real estate, a downgrade of the notes is possible.

Updated surveillance data can be found at:

https://www.fitchratings.com/creditdesk/sectors/perf_analytics/esf/esf_detail.cfm?deal_id=87147800&us_nonus=ALL&deal_nm=Vulcan%20(European%20Loan%20Conduit%20No.28)%20Ltd

Additional information is available at www.fitchratings.com.

The sources of information used to assess these ratings were the issuer, servicer, and periodic cash manager and servicer reports.

Applicable criteria, "Global Structured Finance Rating Criteria" dated 20 May 2014, "Counterparty Criteria for Structured Finance and Covered Bonds" dated 14 May 2014, "Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum" dated 14 May 2014, Criteria for Sovereign Risk in Developed Markets for Structured Finance and Covered Bonds" dated 11 April 2014, "Rating Criteria for Commercial Mortgage-Backed Securities (CMBS) and Loans in EMEA" dated 10 June 2014.

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744175

Criteria for Sovereign Risk in Developed Markets for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=862115

Rating Criteria for Commercial Mortgage-Backed Securities (CMBS) and Loans in EMEA

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749929

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=981363

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Fitch Ratings
Lead Surveillance Analyst
Will Rendell
Associate Director
+44 20 3530 1416
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
or
Committee Chairperson
Galen Moloney
Senior Director
+44 20 3530 1561
or
Media Relations
Athos Larkou, +44 203 530 1549
London
[email protected]

Source: Fitch Ratings

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