TEXT-Fitch affirms Epic Opera (Arlington) Limited

Thu Apr 19, 2012 11:51am EDT

April 19 - Fitch Ratings has affirmed Epic Opera (Arlington) Limited's
commercial mortgage-backed notes due July 2016, as follows:	
	
GBP215.0m class A (XS0311217284): affirmed at 'AAAsf'; Outlook Stable	
GBP53.1m class B (XS0311217441): affirmed to 'AAsf'; Outlook Stable	
GBP1.3m class C (XS0311217870): affirmed at 'AAsf'; Outlook Stable	
	
The affirmation reflects the decreased loan balance and leverage following the
disposal of the Reading Business Park, as well as stable loan performance.
Although the most recent valuation, procured in December 2010, is approximately
30% down from the valuation at closing in August 2007, a combination of equity
injections in 2007 and 2008 (which fully prepaid the class D to F notes and
partially repaid the class C notes), swept cash and asset sales has resulted in
an improvement in the loan-to-value ratio (LTV) to 60.9% from 74.0% at closing.
Fitch estimates the LTV to be around the 65% mark.	
	
The loan pay-down has also contributed to an improvement in the interest
coverage ratio (ICR) to 2.04x from 1.21x at closing. The collateral portfolio
continues to perform soundly, as evidenced by the current occupancy rate of
96.7% across the eight remaining business parks. In Fitch's opinion, the
remaining collateral is characterised by two clusters of quality: two strong
business parks in Oxford and Uxbridge; and the rest, which are more affected by
the weak economic environment, as witnessed by a number of exercised break
options and non-renewals of original leases. Overall, the tenancy profile
remains above average, with the weighted-average unexpired lease term to first
break of 5.4 years helping to mitigate balloon risk.	
	
The loan will be extended from its original maturity date (July 2012) for a
further two years as per an extension option envisaged under the original
facility agreement. Further asset disposals (to reduce the loan balance below
GBP200m by October 2013) and cash sweeping provisions (should the disposals not
be sufficient to reduce the balance) have been put in place as part of the
extension process. Following a loan restructuring approved in October 2009,
sponsor-led asset disposals (and resultant pro rata principal pay) are no longer
constrained by the original release pricing mechanism. Instead, there is a
general requirement to remain compliant with LTV (70%) and ICR (1.15x)
covenants.	
	
Although asset disposal could increase loan leverage and worsen collateral
quality, this would be limited by the available headroom in LTV (reported 60.9%
versus 70% limit), and in any event would be in lieu of the more extreme market
value declines assumed in Fitch's rating stresses. Moreover, there is no reason
to believe the sponsor would have an interest in selling assets at distressed
prices, since this would erode its own substantial equity stake in the
portfolio, which is the main pillar of sound credit quality reflected by the
high ratings.	
	
Fitch will continue to monitor the performance of the transaction. A performance
report will shortly be published on www.fitchratings.com.	
	
Additional information is available at www.fitchratings.com.	
	
The ratings above were solicited by, or on behalf of, the issuer, and therefore,
Fitch has been compensated for the provision of the ratings.	
	
The information used to assess these ratings was sourced from the servicer and
payment report.	
	
Applicable criteria, "EMEA CMBS Rating Criteria", dated 4 April 2012 and "Global
Structured Finance Rating Criteria", dated 4 August 2011, are available at
www.fitchratings.com.	
	
Applicable Criteria and Related Research:	
Global Structured Finance Rating Criteria	
EMEA CMBS Rating Criteria
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