RPT-Fitch Downgrades Opera Germany (No. 2) p.l.c.'s Rating
Oct 16 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has downgraded Opera Germany (No. 2) p.l.c.'s CMBS notes as follows:
EUR314.9m class A (XS0278492706) downgraded to 'BBsf' from 'Asf'; Outlook Negative
EUR46.8m class B (XS0278493001) downgraded to 'BBsf' from 'BBBsf'; Outlook Negative
EUR65.6m class C (XS0278493266) affirmed at 'Bsf'; Outlook Negative
EUR63.7m class D (XS0278493340) affirmed at 'CCCsf'; Recovery Estimate 'RE50%'
EUR9.4m class E (XS0278493423) affirmed at 'CCCsf'; 'RE0%'
KEY RATING DRIVERS
The downgrade reflects the default at loan maturity on 15 October 2013 and the short one-year tail period following a restructuring of the loan in 2009. The Negative Outlook is due to the uncertainty relating to the possible refinancing or sale of the assets during Q114.
Of the three remaining centres, the EUR252.4m Rhein-Ruhr-Zentrum (RRZ) and Schwannenmark (EUR51.6m) have been marketed since October 2011 in line with the December 2009 restructuring plan. The borrower is currently pursuing a refinancing plan for these assets instead of an asset sale. Based on information from the special servicer, the borrower has been in contact with multiple lending institutions. Given the loan's high leverage (86.6%) an equity injection seems unavoidable to secure bank lending for these two assets.
Koe-Galerie's (EUR274.1m) marketing process started a few weeks back and the borrower has informed the special servicer of preliminary bids for the asset. Marketing of the asset had been kept back, awaiting for its refurbishment and re-letting plan to reach an advanced stage. Although some new retail leases have been signed, a large part of office space remains vacant. The current letting situation, together with the increased competition in retail and office space in Dusseldorf, will likely complicate the sale of this asset or place pressure on the sales price.
In order to redeem the class A notes, either a loan refinancing or a sale of both the Koe-Galerie and RRZ are required. Whilst the previous loan restructuring has been beneficial in preserving value in the centres, it has led to a shortening of the tail period to one year from three. Due to this, Fitch sees increasing operational risks related to a timely asset sale prior to the notes' legal final maturity in October 2014.
Given the average-to-good asset quality, Fitch believes the special servicer, Hypothekenbank Frankfurt (Eurohypo), may find the sponsor reticent to allow a collateral sale by October 2014 at a price substantially under current market value. Furthermore, the controlling party (the most junior class of notes), as the only party allowed to substitute the special servicer, is not likely to be motivated to force a quick sale at a discount. This brings further uncertainty over resolution timing.
Further downgrades may be triggered by continuous uncertainty over the resolution plan in the next few months, in light of the approaching legal final maturity of the notes.