RPT-Fitch Affirms Draco (Eclipse 2005-4) plc at 'CCCsf'

Mon Feb 3, 2014 5:39am EST

Feb 3 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Draco (Eclipse 2005-4) plc's class E notes due 2017 as follows:

GBP3.4m class E (XS0238141617): affirmed at 'CCCsf', Recovery Estimate (RE) 90% Draco (Eclipse 2005-4) plc is a securitisation of five commercial mortgage loans originated in the UK by Barclays Bank plc. Four loans have prepaid since closing in December 2005, leaving the loan pool with a current balance of GBP7.9m as at the January 2014 interest payment date.

KEY RATING DRIVERS

The GBP144.1m Flintstone loan (95% of the pool balance) has, over the past 12 months, been repaid in full, ahead of its maturity in October 2015. The redemption triggered the sequential principal allocation to the notes, resulting in the full repayment of the class A to D notes at the January 2014 interest payment date.

The remaining loan, GBP7.9m Herbert House, is secured by a single-tenanted secondary office property located in Birmingham city centre. The building is fully let to Cable and Wireless Communications with a lease break in July 2015. As per Fitch's expectation, the loan defaulted at its maturity on 7 January 2014 and was transferred to special servicing (performed by Capita Asset Services). Uncertainty surrounding the future income profile is reflected in the July 2012 market value of GBP5.2m, down from GBP11.2m in September 2005.

In the event that the lease break is exercised, even the vacant possession value of GBP3.2m may not be achievable given the poor condition of the property and required capital expenditure. In addition, the property has unsuccessfully been marketed by the borrower since November 2012 at an asking price in excess of GBP8.5m. Due to the combined effect of the state of repair and the fact that net rental income is higher than the estimated rental value by 52%, Fitch expects the loan recoveries to be insufficient to repay the class E notes in full. This is reflected in the recovery estimate of 90%.

RATING SENSITIVITIES

The class E notes may be repaid in full should the tenant not exercise its break option. The additional 10 years of income would sufficiently increase the value of the asset (and the appeal to investors) to avoid a default. In this scenario, an upgrade would be possible.

Fitch will continue to monitor the performance of the transaction. A performance update report will be published shortly on www.fitchratings.com.