Fitch Downgrades Talisman 5
OREANDA-NEWS. Fitch Ratings has downgraded TALISMAN -5 Finance plc's class A, B and C notes due in July 2016 and affirmed the others as follows:
EUR57.4m class A (XS0278333736) downgraded to 'B-sf' from 'BBBsf'; Outlook Negative
EUR35.9m class B (XS0278334460) downgraded to 'CCsf' from 'BBsf'; Recovery Estimate (RE) 100%
EUR26.1m class C (XS0278334973) downgraded to 'Csf' from 'CCsf'; RE75%
EUR9.4m class D (XS0278335277) affirmed at 'Dsf'; RE0%
EUR0m class E (XS0278335863) affirmed at 'Dsf'; RE0%
TALISMAN - 5 Finance plc originally was a EUR544.2m securitisation of seven CMBS loans, originated by ABN AMRO. As of end-October 2015, three loans were outstanding with a cumulative balance EUR121.5m. All loans are currently in special servicing.
KEY RATING DRIVERS
The downgrades reflect the diminishing prospects of the issuer repaying its liabilities by legal final maturity in July 2016. In the last 12 months the main success was the resolution of the Fish loan, fetching EUR50.3m (at a EUR7.3m loss) in recoveries. Elsewhere progress has slowed and in some cases reversed: bids have been withdrawn (eg Reindeer loan), local politics have added complication and uncertainty (eg Penguin loan), while marketing efforts have been slow (eg Monkey loan). Added to this, vacancy has been steadily rising and expected to rise further, as some large tenants follow through on previous notices to vacate.
Fitch estimates that sizeable pockets of collateral value remain in each of the three portfolios, thus supporting the recovery estimates (which look through bond maturity). However, the special servicer's ability to release this value in time for bond maturity has fallen markedly, leaving no margin of safety for class A investors. The Negative Outlook on this tranche reflects the risk of a further downgrade in the months ahead unless significant progress on work-outs can be demonstrated.
The Penguin loan (39.3% of the pool) is secured by six offices in the Paris region. The sale and purchase agreement that was signed with a major French residential developer regarding the Colombes site (comprising four of the properties) was rejected by the mayor, on the grounds that the scheme would have been above the desired residential density. Should the mayor purchase the site for the city's own redevelopment plans, as intended, and while an offer for the site may come soon, it is likely to be well down from the previous bids.
The two remaining Penguin offices are in Evry and Suresnes. The Evry property is let on a 3/6/9 lease to Carrefour, which Fitch expects to vacate in December 2017. The borrower restarted marketing the multi-let Suresnes property in 2Q15, with several bids reportedly received. Fitch understands from the special servicer that they expect the property will be sold for at least EUR12m.
The Reindeer loan (32.5%) is secured by a portfolio of secondary Finnish retail properties. Challenges in the Finnish retail market have resulted in a gradual increase in vacancy to approximately 35% currently, from 28% a year ago. Fitch understands from the special servicer that final offers for the portfolio have been received and are currently being evaluated. If a portfolio sale is not achieved by year end, an asset-by-asset sale strategy will be pursued, limiting the prospect of significant proceeds flowing in time for bond maturity in Fitch's view.
The Monkey loan (28.4%) is secured by a business park and a hotel on the outskirts of Munich. The largest tenant at the business park (accounting for 40% of income) has terminated its lease contract and is due to vacate in December. An attempt to refinance the property has failed, and a borrower-led sale process is now being pursued. This offers the greatest chance of realising material proceeds in the short term given the hotel is leased for nine years to Holiday Inns.
The Negative Outlook on the class A notes reflects the risk of a further downgrade in the months ahead unless significant progress on work-outs can be demonstrated.
Fitch estimates ultimate 'Bsf' recoveries of EUR105m - EUR120m
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.
-Loan-by-loan data provided by servicer as at end-October 2015
-Transaction reporting provided by servicer as at end-October 2015