RPT-Fitch Revises Talisman 7 plc Class A's Outlook to Stable; Affirms Ratings
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July 4 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has revised the Outlook on Talisman 7 plc's class A notes to Stable from Negative and affirmed all ratings as follows:
EUR94.4m class A: affirmed at 'BBBsf'; Outlook revised to Stable from Negative
EUR87.3m class B: affirmed at 'BBsf'; Outlook Negative
EUR84.2m class C: affirmed at 'Bsf'; Outlook Negative
EUR66.5m class D: affirmed at 'CCCsf'; Recovery estimate (RE) 30%
EUR47.1m class E: affirmed at 'CCsf'; RE0%
EUR68.9m class F: affirmed at 'Csf'; RE0%
EUR44.8m class G: not rated
EUR10.7m class H: not rated
EUR19.4m class I: not rated
EUR3.9m class J: not rated
Talisman 7 plc is a securitisation of originally 10 commercial mortgage loans originated by ABN AMRO Bank NV. As at end-April 2014, all the remaining nine loans were in special servicing and had an outstanding cumulative balance of EUR527.2m. The loans are backed by 82 properties located in Germany valued at EUR384.2m.
KEY RATING DRIVERS
The revision of the class A's Outlook reflects the strong sequential pay-down of the transaction over the last four interest payment days (IPD). As a result the class A note has amortised to EUR94.4m from 333.8m a year ago through asset sales. At the same time the stable performance and the successful sales efforts underpin today's affirmation of the ratings.
The Mozart loan asset sale (the largest loan in the portfolio and a syndicated senior EUR279.6m loan of a EUR484.3m whole loan) has progressed with 27 assets sold over the last year, leaving 34 mixed-use properties located around Germany in the portfolio. Fitch notes that sale agreements have been signed for a further five assets. The pace of asset sales, together with sale prices being achieved on average above valuations, partially mitigates increasing leverage. The loan-to-value of the portfolio increased to 121% from 91% over the last 12 months, reflecting a more negative view on the remaining portfolio.
The Eschborn office asset securing the Brahms loan was sold for EUR23.4m in January 2014. The proceeds were distributed to noteholders on the April IPD. The Brahms borrower is going through insolvency proceedings and minor further recoveries are still possible. Nevertheless when the loan is fully resolved a loss of around EUR20m will be allocated to the unrated classes I and J. With all loans in special servicing and undergoing different stages of resolution, expected recoveries are highly dependent on the short-term market conditions for secondary and tertiary real estate in Germany. Although investor interest has returned to this market sector after years of subdued demand, the achievable prices are still well below those seen in 2005-2007, when these loans were originated. This level of stress is reflected by the below investment grade ratings of the class B to F notes. The transaction benefits from a further EUR78.8m credit enhancement offered by the unrated classes G to J notes.
Lower-than-expected recoveries in the remaining notes or an adverse turn in market sentiment for secondary and tertiary assets in Germany could prompt a negative rating action on the notes.
Fitch estimates 'Bsf' collateral proceeds at between EUR270m-EUR290m. The latest surveillance data is available at the below link:
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