(Repeat for additional subscribers)
July 3 (The following statement was released by the rating agency)
Fitch Ratings has assigned Moda 2014 S.r.l expected ratings as follows:
EUR145.1m Class A due August 2026 (ISIN: TBC): 'A+(EXP)sf'; Outlook Stable
EUR14.6m Class B due August 2026 (ISIN: TBC): 'A(EXP)sf'; Outlook Stable
EUR17.7m Class C due August 2026 (ISIN: TBC): 'BBB-(EXP)sf'; Outlook Stable
EUR3.8m Class D due August 2026 (ISIN: TBC): 'BB+(EXP)sf'; Outlook Stable
EUR17.0m Class E due August 2026 (ISIN: TBC): 'B(EXP)sf'; Outlook Stable
The final ratings are contingent upon the receipt of final documents and legal
opinions conforming to the information already received.
The transaction is a securitisation of two commercial mortgage loans totalling
EUR198.2m. The loans were granted by Goldman Sachs International Bank (GS, or
the originator) to six Italian limited liability companies to finance the
acquisition of/refinance certain Italian retail assets: a fashion outlet village
(Franc loan); another fashion outlet village; a shopping centre; and two retail
galleries (Vanguard loan). All the real estate is located in Italy and owned by
borrowers sponsored by Blackstone.
KEY RATING DRIVERS
The expected ratings are based on Fitch's assessment of the underlying
collateral, available credit enhancement and the transaction's legal structure.
Both loans benefit from scheduled amortisation of 1% per annum, meaning that
(holding market values constant) the exit LTV for Franciacorta is 56% and for
Vanguard 61%. Both loans also benefit from robust interest coverage ratio (ICR)
tests: a cash-trap trigger at 2.0x and a default covenant at 1.4x, which -
together with a highly granular income base, with no tenant accounting for more
than 3.2% of passing rent - mitigate the generally short weighted average lease
Fitch views the Franciacorta asset as the best property in the portfolio, since
it benefits from stable occupancy ratios and it is considered the destination
outlet centre for a catchment area of approximately 3.7m people in a prosperous
region. The Vanguard loan is instead backed by properties of mixed quality.
Fitch believes the Valdichiana outlet centre to be a good prospect, whilst
considers La Scaglia property to be the most challenging.
One component of the Vanguard loan was advanced in part to the property company
holding the asset and in part to its parent/acquirer, reflecting a limitation on
the propco's debt capacity (to comply with "financial assistance" rules for
company acquisitions under Italian law). Fitch understands that a merger of
these vehicles is proposed to relieve this limitation and allow for the Vanguard
parent loan to be absorbed into the conventional mortgage loan secured over the
shopping centre. However, pending completion, EUR17.0m is not secured by the
mortgage and is treated by Fitch as unsecured.
Fitch notes that the Italian retail sector has been suffering from a protracted
recession. Whilst the agency's real estate analysis incorporates significant
further deterioration due to the Italian retail outlook, the ratings may be
affected by macroeconomic shocks.
The structure allows some non-senior notes to share in amortisation arising from
prepayments. Fitch has modelled a prepayment of the stronger Franciacorta loan
to test the effect on senior notes of a greater exposure to weaker property from
the Vanguard portfolio.
While the borrower-level interest rate caps expire at the loan's scheduled
maturities, Euribor on the notes thereafter will be capped at 7%, partially
mitigating interest rate risk during the tail period. Property disposals are
allowed to a premium above their respective allocated loan amounts.
Any excess spread (being the difference between interest available funds
received under the loan and the sum of ordinary issuer expenses and notes
interest payments) would be allocated to the holder of the unrated classes X1
and X2 notes. These instruments rank pari-passu with class A interest until the
earlier of loan default or maturity, when they would become subordinated to all
rated notes' payments.
The transaction features a seven-year tail period between loan scheduled
maturity (2019) and legal final maturity of the notes (2026). This length of
time reduces the risk of an uncompleted workout by bond maturity, particularly
given the uncertainty over mortgage enforcement timing in Italy. While share
pledges over the holding companies located in Luxembourg may shorten the
recovery process and decrease costs, Fitch has nevertheless assumed a
conventional collateral enforcement in Italy mainly due to a lack of precedents.
KEY PROPERTY ASSUMPTIONS
'Bsf' weighted average LTV (by loan amount): 76.9%
'Bsf' weighted average capitalisation rate (by net rent): 7.2%
'Bsf' weighted average structural vacancy (by net rent): 13.0%
'Bsf' weighted average rental value decline (by net rent): 2.0%
Fitch tested the rating sensitivity of the class A to E notes to various
scenarios, including steeper rental value declines, increasing capitalisation
rates and rising structural vacancy. The expected impact on the notes' ratings
is as follows:
Current Rating: 'A+(EXPsf)'/'A(EXPsf)/'BBB-(EXP)sf'/'BB+(EXP)sf'/'B(EXP)sf'
Deterioration in all factors by 1.1x:
Deterioration in all factors by 1.2x: 'BBB(EXPsf)'/'BBB
Link to Fitch Ratings' Report: Moda 2014 S.r.l.