OREANDA-NEWS. Fitch Ratings has downgraded Mesdag (Charlie) B.V.'s class B notes and affirmed the others, as follows:

EUR33.3m Class B (XS0289822677) downgraded to 'A-sf' from 'A+sf'; Outlook Stable
EUR40.3m Class C (XS0289823568) affirmed at 'CCsf'; Recovery Estimate (RE) 25%
EUR5.7 Class D (XS0289824533) affirmed at 'Dsf'; RE0%
EUR0m Class E (XS0289824889) affirmed at 'Dsf'; RE0%

The transaction is a securitisation of four loans backed by commercial real estate assets in Germany and the Netherlands and originated by NIBC Bank N.V.

The downgrade of the class B notes reflects greater tail risk for the recovery prospects for three of the remaining four loans, with growing reliance on the outcomes of Dutch and German insolvency proceedings. Repayment of the then largest loan in the portfolio, Berlin (EUR112m), as well as principal receipts from asset sales from the Dutch Office portfolio have fully repaid the class A notes and reduced the class B notes' balance.

However, the rate of payment from the Dutch Office portfolio, which is being administered by Dutch insolvency practitioners (IP), has been slow, with little visibility as to potential delays, costs and haircuts. Realising proceeds close to reported value for one relatively large regional office in Amersfoort will be significant to cover the class B notes.

This property is located in the centre of Amersfoort, bordering the railway station, with significant concentration to a single tenant Twynstra Gudde Adviseurs & Managers B.V., representing 86% of the passing rent. Although centrally located, the asset has suffered from a high level of vacancy, around 41%, for some time. In addition, all of the in place leases expire in 2018, raising the risk of a further decline in income for any future investor. The class C and below notes are expected to suffer losses, in part and in full, arising from the Dutch Office portfolio.

The Dutch Office portfolio is collateral for two loans, Dutch I (EUR30m, secured on two properties) and II (EUR22m, one property described above). Both loans are deep in negative equity following a series of sales well below allocated loan amounts (LTVs of 380% and 197%). In the past 12 months, two properties from Dutch Offices I and one from Dutch Offices II have generated senior principal receipts of EUR4.8m (from an aggregate sales price of EUR7m). The special servicer reports that the IP have identified prospective purchasers for the three properties, with completion due this quarter.

The strongest loan is the EUR28.9m Tommy loan, backed by German housing (single family and multifamily units). A portion of the portfolio, mainly single family units, is let by the German government on behalf of the UK military, originally under three contracts with rolling six month break options. The rest is mainly multifamily stock. Overall occupancy stands at 89.4%, slightly down since the last rating action. Low reported leverage (LTV of 35.6% based on a December 2014 valuation; interest coverage of 2.1x) should support the loan repayment by the borrower (a closed-ended fund) at April maturity.

The Derrick loan failed to repay at maturity in September 2013. The collateral is a property near Hildersheim in Germany fully occupied by the Goettingen police force until September 2020. A recent scheduled rent review increased passing rent to EUR372,696 (up 15%), which should help with cash sweep. However, a lack of visible activity in the workout process, which the special servicer attributes in part to the borrower's attempt to re-gear the lease, signals weak appetite for the asset, in Fitch's view.

Fitch estimates 'Bsf' recoveries of EUR44m.

Lower than expected recoveries from the property sale strategy regarding the three loans in special servicing may negatively affect the ratings on the class B notes. The performance of the transaction as a whole relies heavily on the Tommy loan repaying in full. Any delay with this at maturity could have a negative impact on the ratings of the senior tranches and consequently the class C recoveries.

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.

The information below was used in the analysis.
- Loan-by-loan data provided by NIBC Bank N.V. as at 30 November 2015
- Transaction reporting provided by NIBC Bank N.V. as at 30 November 2015