Dec 18 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Indus (Eclipse 2007-1) plc, as follows:
GBP131.0m class A (XS0294756449) affirmed at 'BBBsf'; Outlook Stable
GBP47.0m class B (XS0294757173) affirmed at 'Bsf'; Outlook Stable
GBP52.9m class C (XS0294757256) affirmed at 'CCCsf'; Recovery Estimate (RE) 80%
GBP16.5m class D (XS0294757504) affirmed at 'Dsf'; RE0%
GBP0m class E (XS0294757686) affirmed at 'Dsf'; RE0%
KEY RATING DRIVERS
The affirmation of the class A, B and C notes is primarily driven by the broadly
stable performance of the collateral since last year, the sequential pay down,
loan repayments (the Adelphi, St. George, Alba Gate and Pitch 2 loans fully
repaid as expected) and the bar-belled nature of the portfolio.
The Criterion loan now accounts for 43% of the outstanding deal amount and is
backed by a mixed-use asset on Piccadilly Circus that houses McKinsey & Company
(60% of income), and the sports retailer Lillywhites (5%), among others.
Although the asset sits in a prime location, there have always been difficulties
in letting certain sections of the retail space, possibly due to the property's
configuration. For instance, the space previously occupied by Zavvi (which went
into administration in 2009) is currently let on a "tenancy at will" basis,
increasing the risk of income volatility. Nevertheless, income has remained
largely stable over the past 12 months. While the loan suffers from a large
mark-to-market swap exposure of circa GBP23m, this has reduced from around
GBP30m due to rising interest rates, improving future recovery prospects. Fitch
estimates breakage costs on the basis of long-term interest rate stresses and
therefore these market dynamics are rating neutral.
The second and third-largest loans, NOS 2 & NOS 3 and Workspace, like some of
the smaller loans, are backed by secondary or tertiary quality assets. Although
there are signs of improvement in the investment and occupational markets for
good secondary assets, Fitch believes most of the assets are unlikely to benefit
from this change in sentiment. In particular, the GBP26.6m Workspace Portfolio
loan, where a consensual disposal of the portfolio is planned by the special
servicer, is likely to incur heavy losses as the sales plan progresses. The
latest investor report indicates that three of the Workspace properties securing
the loan, Durham, Ashington and Seaham, are likely to be sold with a 26%
discount compared with the January 2012 valuation.
In Fitch's view, the estimated losses are likely to be fully absorbed by the
class C and D notes.
Fitch estimates 'Bsf' principal recoveries of approximately GBP220m. A failure
to successfully sell off the Workspace Portfolio assets and a further
deterioration in the performance of the loans backed by secondary/tertiary
assets, such as the NOS 2 & NOS 3 loan, is likely to have a detrimental effect
on the junior notes. The senior classes are susceptible to a decline in the
performance of the Criterion loan, in particular its retail space let on a
"tenancy at will" basis and the future break option of McKinsey and Company in
Fitch will continue to monitor the performance of the transaction. A performance
update report will shortly be available on www.fitchratings.com.