TEXT-S&P afrms all rtgs in U.K. CMBS deal Canary Wharf Finance II

Mon Dec 24, 2012 9:34am EST

Related Topics

Dec 24 -

OVERVIEW

-- On Dec. 6, 2012, we placed on CreditWatch negative all of our ratings in Canary Wharf Finance II following an update to our criteria for rating European CMBS transactions.

-- Following the application of our updated European CMBS criteria, we have today affirmed and removed from CreditWatch negative our ratings on all classes of notes.

-- Canary Wharf Finance II is a true sale transaction that closed in June 2000. Various tap issuances and restructurings followed, with the latest being in April 2007. Seven commercial properties that form part of the Canary Wharf Estate back the transaction.

Standard & Poor's Ratings Services today affirmed and removed from CreditWatch negative its credit ratings on all of Canary Wharf Finance II PLC's classes of notes (see list below).

On Dec. 6, 2012, we placed on CreditWatch negative all of our ratings in Canary Wharf Finance II following an update to our criteria for rating European commercial mortgage-backed securities (CMBS) transactions (see "Ratings On 240 Tranches In 77 European CMBS Transactions Placed On CreditWatch Negative Following Criteria Update," published on Dec. 6, 2012, and "European CMBS Methodology And Assumptions," published on Nov. 7, 2012).

Today's rating actions, which follow our review of the credit quality of the single loan backing the notes under the application of our updated criteria for European CMBS transactions, reflect our view of losses to the junior notes and their effect on the credit enhancement available to the senior notes.

In September 2012, the issuer reported a loan-minus-cost-to-value ratio of 71.7%, an interest coverage ratio of 1.31x, and a debt service coverage ratio of 1.00x. As the net operating income from the underlying assets is not sufficient to cover the debt payment obligations, as of today, the underlying borrower relies on various dedicated cash reserves set up to mitigate payment default risks. As of September 2012, the cumulative amount remaining on these reserve accounts was GBP46.9 million.

The Canary Wharf Finance II transaction comprises a single loan, secured on seven office properties which form part of the Canary Wharf office estate in East London. On Sept. 30, 2012, the securitized property portfolio was 96.0% let. Most of the tenants are financial institutions and international law firms. The weighted-average unexpired lease term to break was 13.8 years. The portfolio was last valued at GBP3.2 billion in June 2012.

We believe that the available credit enhancement to each class of notes is sufficient to cover asset-credit risk at their current rating levels. We have therefore affirmed our ratings on all classes of notes in Canary Wharf Finance II.

The maximum rating achievable for this transaction under our 2012 counterparty criteria is constrained to our long-term rating on the issuer's liquidity facility provider, Lloyds TSB Bank PLC (A/Negative/A-1) (see "Counterparty Risk Framework Methodology And Assumptions," published on Nov. 29, 2012).

Canary Wharf Finance II is a dedicated vehicle issuing securities that are backed by commercial mortgages secured on seven high-profile commercial office properties within the Canary Wharf estate (33 Canada Square, One Canada Square, 20 Bank Street, 40 Bank Street, 10 Upper Bank Street, 10 Cabot Sq/5 North Colonade, and 20 Cabot Sq/10 South Colonade). Canary Wharf Finance II closed in 2000. Various tap issuances and restructurings followed, with the latest being in April 2007. As of today, the outstanding amount of notes has reduced to GBP2.3 billion.

RELATED CRITERIA AND RESEARCH

Related Criteria

-- Counterparty Risk Framework Methodology And Assumptions, Nov. 29, 2012

-- European CMBS Methodology And Assumptions, Nov. 7, 2012

-- Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012

-- CMBS Global Property Evaluation Methodology, Sept. 5, 2012

-- Criteria Methodology Applied To Fees, Expenses, And Indemnifications, July 12, 2012

-- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, June 14, 2011

-- Principles Of Credit Ratings, Feb. 16, 2011

-- Timeliness of Payments: Grace Periods, Guarantees, And Use Of 'D' And 'SD' Ratings, Dec. 23, 2010

-- Methodology: Credit Stability Criteria, May 3, 2010

-- Global Methodology For Rating Interest-Only Securities, April 15, 2010

-- Use Of CreditWatch And Outlooks, Sept. 14, 2009

-- Understanding Standard & Poor's Rating Definitions, June 3, 2009

-- Standard & Poor's Revises Criteria Methodology For Servicer Risk Assessment, May 28, 2009

-- European Legal Criteria For Structured Finance Transactions, Aug. 28, 2008

-- Weighing Country Risk In Our Criteria For Asset-Backed Securities, April 11, 2006

-- Rating U.S. CMBS In The Face Of Interest Shortfalls, Feb. 23, 2006

-- Technical Challenges In European CMBS Structures, Feb. 16, 2006

-- European CMBS Loan Level Guidelines, Sept. 1, 2004

Related Research

-- Ratings On 240 Tranches In 77 European CMBS Transactions Placed On CreditWatch Negative Following Criteria Update, Dec. 6, 2012

-- Application Of Property Evaluation Methodology In European CMBS Transactions, Nov. 7, 2012

-- Standard & Poor's Ratings Definitions, June 22, 2012

-- European Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, March 14, 2012

-- Request For Comment: Methodology For Rating Debt Issues Based On Imputed Promises, Feb. 10, 2012

-- Global Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011

-- European CMBS Monthly Bulletin, published monthly

RATINGS LIST

Class Rating

To From

Canary Wharf Finance II PLC

EUR283 Million, GBP3.626 Billion, $579 Million First Mortgage Debentures

(Including GBP153.4 Million Net Additional Debt Issuance)

Ratings Affirmed And Removed From CreditWatch Negative

A1 A (sf) A (sf)/Watch Neg

A3 A (sf) A (sf)/Watch Neg

A7 A (sf) A (sf)/Watch Neg

B A (sf) A (sf)/Watch Neg

B3 A (sf) A (sf)/Watch Neg

C2 A (sf) A (sf)/Watch Neg

D2 BBB (sf) BBB (sf)/Watch Neg

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.