TEXT - Fitch affirms Bellatrix (Eclipse 2005-2) plc
Feb 12 - Fitch Ratings has affirmed Bellatrix (Eclipse 2005-2) plc's CMBS Class D notes, due January 2017, and assigned a Stable Outlook as follows: GBP1.8m class D (XS0225388700) affirmed at 'AAAsf'; removed from Rating Watch Negative (RWN); Outlook Stable The transaction is subject to a continuing note event of default (NOD) due to an interest shortfall on the Class D tranche. However, the affirmation reflects the substance of the notes' credit position, with the interest shortfall representing a non-material amount, the remaining Class D note principal expected to repay in full on the April 2013 interest payment date (IPD) and the interest shortfall also capable of being paid in full on the April 2013 IPD if noteholders choose to accelerate the notes. The unpaid Class D interest amount almost doubled to approximately GBP11,000 on the January 2013 IPD compared with the previous unpaid amount that first arose on the October 2012 IPD. In the event that the noteholders were to instruct the trustee to accelerate the notes prior to the April 2013 IPD, Fitch understands that this would lead to the post-enforcement priority of payments being applied. This would involve a combined interest and principal waterfall being applied, which, in all likelihood would lead to a full repayment of all interest and principal to the tranche on the April 2013 IPD. If the noteholders choose not to accelerate the notes, Fitch understands that the pre-enforcement priority of payments would continue to be applied. This involves separate principal and interest waterfalls and, while full repayment of principal would still be expected at that time, the interest shortfall could remain outstanding if revenues remain insufficient to meet that period's senior expenses, the April 2013 IPD interest payment and the unpaid interest shortfall. On the January 2013 IPD, the issuer's senior costs remained elevated. The volatility of issuer expenses remains high as the transaction reduces in size, with quarter by quarter estimates of note interest shortfalls (if any) remaining highly unpredictable. Since the class D notes are now the most senior note outstanding in the structure, the terms and conditions of the notes no longer allow for interest to be deferred. Ordinarily, Fitch would reflect an NOD in its ratings by downgrading the affected notes to 'Dsf'. However, in this case Fitch believes that downgrading the rating to 'Dsf' with respect to such a non-material shortfall amount, which is also capable of being repaid at the next IPD, would not reflect the substance of the tranche's current credit position. Fitch expects all outstanding principal to be repaid on the April 2013 IPD as a result of the repayment of one or both of the Oxford Street (43%) or the Cavendish Square loans (35%) at their maturities on the April 2013 IPD. Full principal repayment of the Class D notes is expected as the tranche's debt yield is well over 50%, with more than sufficient principal funds generated to also repay any interest shortfalls if the post-enforcement priority of payments is applied. Fitch therefore believes that the credit quality of the tranche remains commensurate with a 'AAAsf' rating. The Oxford Street loan is secured by a restaurant and car park in the centre of Manchester and let to tenants until 2025, while the Cavendish Square loan's collateral is a high quality office building located in the heart of central London, fully let until 2020. Fitch believes that both loans retain sufficient equity to be repaid, leading to a full repayment of the GBP1.8m Class D principal amount that remains.
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