Fitch Affirms Patrimonio Uno CMBS
EUR58.8m Class B (IT0004070048): affirmed at 'BBB+sf'; Outlook Stable
EUR40.6m Class C (IT0004070055): affirmed at 'BBB+sf'; Outlook Stable
EUR17.7m Class D (IT0004070063): affirmed at 'BBB+sf'; Outlook Stable
EUR22.9m Class E (IT0004070071): affirmed at 'BBB+sf'; Outlook Stable
EUR19.0m Class F (IT0004078173): affirmed at 'BBB+sf'; Outlook Stable
Patrimonio Uno is a CMBS transaction secured by a single loan backed by commercial real estate assets across Italy. Agenzia del Demanio (ADD) - a public entity fully guaranteed by the Republic of Italy - accounts for more than 90% of rent. The property portfolio comprises 35 predominantly office properties, down from 37 at the same time last year. The proceeds from the two property sales along with equity injections from the borrower led to the repayment of class A notes at the January 2016 bond interest payment date (IPD).
KEY RATING DRIVERS
The affirmation reflects the stable performance of the underlying property portfolio. Although progress with liquidating the portfolio is slow, the fund has demonstrated a commitment to the loan by making equity injections. The notes' ratings are capped by the Republic of Italy (BBB+/Stable) given the significance to collateral value of the ADD lease (which is in place until December 2023).
Since the last rating action on 11 February 2015, two properties have been sold with the respective allocated loan amounts and release premiums having been allocated to the notes on a pro-rata basis. Sequential allocation of EUR21m of voluntary repayments, made by the borrower in order to meet an amended loan to cost ratio (LTC) schedule, have led to the full repayment of the class A notes.
Over the almost two years left until scheduled loan maturity Fitch expects considerable further deleveraging. As this may arise from property sales, should the stronger properties be sold first Fitch finds the release premium sufficient to compensate for adverse selection.
If sales are not fast enough to ensure the LTC remains in line with the amended schedule, the issuer will enjoy a full cash sweep of surplus rent. Fitch views this as more likely given the slow pace of sales, both by number and value of properties. A full cash sweep should lead to significant debt repayment by loan maturity because not only is ADD rent indexed to inflation; the effect of the swap amortising is to reduce debt service costs.
As an Italian closed end fund, Fitch understands that at its end date the borrower can take advantage of a three-year extension. This would trigger an extension of the loan maturity until 2020, thereby prolonging the cash sweep until the fund is liquidated. In 2020, if not already unwound, the borrower would be subject to an enforced liquidation. While we do not view one year as sufficient time to conclude enforced liquidation of an Italian real estate fund, adopting a loan rating analysis suggests the borrower's equity remaining in 2020 under 'BBB+' rating conditions would be sufficient to assume it repays the loan in full.
The ratings are capped by the rating of Republic of Italy. However, without further equity injections an upgrade of the sovereign is unlikely to lead to an upgrade.
Estimated 'Bsf' debt proceeds are EUR159.1m.
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 Mount Street LLP as at 17 September 2015
- Transaction reporting provided by BNY Mellon as at 02 February 2016
- Special Notices provided by Mount Street as at 24 December 2015