Fitch Downgrades Fairhold Securitisation Limited to 'Dsf'; Withdraws Ratings
OREANDA-NEWS. Fitch Ratings has downgraded Fairhold Securitisation Limited's floating-rate notes due October 2017 and withdrawn the ratings, as follows:
GBP413.7m class A (XS0298926360) downgraded to 'Dsf' from 'Bsf'; Recovery Estimate 80%
GBP29.8m class B (XS0298927509) downgraded to 'Dsf' from 'CCCsf'; Recovery Estimate 0%
The transaction is a single-borrower securitisation of freehold RPI-linked ground rents and transfer fees derived from a portfolio of sheltered housing located in the UK and encumbered by long leasehold interests. The variability of the inflation linked ground rents was stripped out by long-term RPI swaps, while the floating rate debt was hedged over a similar term using interest rate swaps.
KEY RATING DRIVERS
The downgrades reflect a note event of default triggered by the termination of the hedging at loan maturity and formally declared by the issuer in April. As the formal representative of noteholders, the Ad Hoc Group instigated various changes to the transaction via noteholder resolution, including replacing Deutsche Trustee Company Limited with GLAS Trust Corporation Limited as note trustee. As a result, senior expenses greatly increased, accounting for the bulk of issuer income.
The imposition of such extraordinary issuer costs (predominantly advisory) under the direction of the Ad Hoc Group and at the expense of secured liabilities (including swap breakage costs, which crystallised in October and which would have ranked pari passu with class A payments) represents a robust negotiation tactic employed on behalf of noteholders. In response, swap counterparties have challenged the validity of the supporting noteholder resolutions, causing the issuer in April to suspend further payments (including issuer expenses), and prompting it to officially declare a note event of default.
Assuming issuer secured claims are redeemed according to the post-enforcement priority of payments, Fitch estimates that the class A notes would expect recoveries in the region of 80%. However, with little visibility as to the likely resolution of the outstanding claims against the issuer, Fitch is no longer in a position to monitor the appropriateness of this assumption, and is therefore withdrawing the ratings.
Not applicable following the withdrawal of the ratings.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
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 Deutsche Bank AG as at April 2016