OREANDA-NEWS. S&P Global Ratings today lowered its credit rating on Silenus (European Loan Conduit No. 25) Ltd.'s class D notes. At the same time, we have affirmed our ratings on the class C, E, F, and G notes (see list below).

Silenus (European Loan Conduit No. 25) is a commercial mortgage-backed securities (CMBS) transaction that closed in March 2007. It was originally backed by 17 loans. Of the loans, 16 have repaid, including two at a loss. Today's rating actions follow our review of the remaining loan in this transaction.

VIRGILIO LOAN (FORMERLY ORAZIO, 100% OF THE POOL)

The loan is secured against a portfolio of three office properties located in Naples, Rome, and Milan, as well as 41 retail assets in smaller northern Italian cities. The current securitized balance is €118.6 million.

The loan was transferred to special servicing on May 6, 2011, due to a breach of the loan-to-value (LTV) ratio covenant. The loan has since been restructured and all assets and liabilities in the Orazio senior loan have been transferred to Fondo Virgilio, a new Italian closed-end speculative common property investment fund, which will replace the original borrower. In addition, the maturity date of the senior loan was extended until November 2017. Until then, the borrower is required to dispose of the properties by specific periods.

In addition, the Italian issuer special servicer has confirmed that, on June 29, 2016, the buyer and the Italian special servicer signed a conditional purchase agreement for the Milan property for a gross sales price of €49,960,000. The purchase will become legally effective following the expiry of a 60 day pre-emption period during which the superintendent to cultural heritage has the option to purchase the property.

As of the May 2016 interest payment date (IPD), the loan's securitized LTV ratio was 84.4%. This is based on a March 2016 valuation of €140.5 million.

We have assumed principal losses on the loan in our 'B' rating stress scenario.

INTEREST SHORTFALLS

On the May 2016 IPD, only the class C notes received the full interest due. The class D notes received only €46,356 of the €62,284 interest due, and the class E and F notes did not receive any interest. The class G notes did not accrue any interest as a nonaccruing interest amount has been fully allocated to these notes.

In our view, the interest shortfalls experienced by the transaction are due toa combination of spread compression between the loan and the notes, as well ashigh prior-ranking transaction costs that, together, have resulted in insufficient funds available to meet all interest payments due on the notes.

RATING RATIONALE

Our ratings in this transaction address the timely payment of interest and theultimate payment of principal no later than the May 2019 legal final maturity date.

Although we consider the available credit enhancement for the class C notes tobe adequate to mitigate the risk of losses from the remaining loan in higher stress scenarios, we have affirmed our 'B (sf)' rating due to the increased risk of cash flow disruption.

We also consider the available credit enhancement for the class D notes to be adequate to mitigate the risk of losses from the remaining loan in higher stress scenarios. However, due to interest shortfalls on this class, we have lowered to 'D (sf)' from 'CCC+ (sf)' our rating on this class of notes. The interest shortfalls represent a failure to pay timely interest, which we believe is unlikely to repay within 12 months (see "Structured Finance Temporary Interest Shortfall Methodology," published on Dec. 15, 2015).

We have also affirmed our 'D (sf)' ratings on the class E, F, and G notes as they have continued to experience interest shortfalls.