OREANDA-NEWS. Fitch Ratings has affirmed Meadowhall Finance PLC as follows.

GBP493.6m class A1 (XS0278325476) affirmed at 'AAAsf'; Outlook Stable

GBP53.3m class A2 (XS0278327415) affirmed at 'AAAsf'; Outlook Stable

GBP136.2m class B (XS0278326441) affirmed at 'AAsf'; Outlook Stable

GBP91.5m class M1 (XS0278328496) affirmed at 'Asf'; Outlook Stable

GBP58.0m class C1 (XS0278329890) affirmed at 'BBBsf'; Outlook Stable

Meadowhall Finance PLC is a 2006 securitisation of a loan backed by a super-regional shopping centre located to the northeast of Sheffield, South Yorkshire. Since October 2012, the Meadowhall shopping centre has been owned by a joint venture between British Land and Norges Bank Investment Management. The class M1 and C1 notes are currently held by the issuer as reserve bonds. Subject to satisfying certain conditions, the borrower may draw down the underlying financing by placing these notes with investors.

KEY RATING DRIVERS

Collateral performance has been stable with passing rent at GBP79.3m as of March 2016, up slightly from GBP78.5m a year earlier. The 2016 figure still incorporates rental income from a lease with BHS Ltd., which is undergoing administration. While Fitch took the tenant default into account in its analysis, the default on payments under the lease do not affect ratings. We note that estimated rental values are reported to be higher compared with payments under the BHS lease, which was entered into in 2000.

Overall, the diversified income profile with a weighted average remaining term to break of 6.9 years remains a key strength of the transaction. Therefore, we do not expect the pick-up in scheduled amortisation payments - in July 2017 for class A2 and April 2018 for class A1 - to put a stress on the transaction. As of July 2016, the debt service cover is reported at 1.26x, broadly in line with historical performance.

The LTV of currently drawn amounts is 40% based on a valuation as of March 2016. The LTV ratio would be 48% when taking into account the amounts of the currently undrawn class M1 and C1 notes, which may be issued subject to fulfilment of certain conditions. This moderate leverage level means there is a substantial equity stake for the sponsor, which should motivate it to maintain Meadowhall's market position and is viewed positively by Fitch. The ongoing capex programme - estimated at GBP60m over 2016 and 2017 - is a reflection of this commitment, but Fitch views ongoing investments as key to retain the appeal of the property amid changing consumer habits.

RATING SENSITIVITIES

The immediate impact on total passing rent from default under the BHS lease is limited, but the tenant occupied one of the largest units, with 5% of gross lettable area. The progress in marketing this space will hence provide a gauge on market sentiment post the UK Brexit referendum. Fitch applies substantial rental value declines in its analysis, but a protracted vacancy period combined with a substantial fall in rents could negatively affect the ratings. Fitch understands that the space can be flexibly let, either in its entirety or as a number of smaller units, which should support quick marketing efforts.

Fitch's 'Bsf' market value is GBP1.2bn.

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.

- Rent rolls provided by The British Land Company Plc as at March 2016

- Transaction reporting provided by The British Land Company Plc as at April and July 2016

- Discussions with The British Land Company Plc as at July 2016