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June 7 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has downgraded STABILITY CMBS 2007-1 GmbH’s (STABILITY) class D and affirmed the senior swap and other commercial mortgage-backed floating-rate note ratings as follows:
EUR151.2m senior swap affirmed at ‘AAAsf’; Outlook Stable
EUR0.1m Class A+ (DE000A0N30Z7) affirmed at ‘AAAsf’; Outlook Stable
EUR31.8m Class A (DE000A0N3005) affirmed at ‘Asf’; Outlook Stable
EUR46.4m Class B (DE000A0N3013) affirmed at ‘BBBsf’; Outlook Stable
EUR30.5m Class C (DE000A0N3021) affirmed at ‘BBsf’; Outlook Negative
EUR30.4m Class D (DE000A0N3039) downgraded to ‘CCCsf’ from ‘Bsf’; Recovery Estimate RE90%
EUR28.2m Class E (DE000A0N3047) affirmed at ‘CCsf’; ‘RE0%’
The downgrade is driven by deterioration in the portfolio’s credit metrics. Especially the IKB Deutsche Industriebank AG (not rated) internal exposure ratings which have shifted downwards, with now 14% of the principal balance in the lowest rating bucket (rating 5 or below) compared to 7% a year ago. The affirmation is driven by the portfolio’s strong amortisation and the resulting increase in credit protection, given fully sequential principal pay down rules. The pool balance has reduced to EUR332.5m from EUR909.2m at closing.
Collateral performance over the past 12 months has been stable to negative. Loans affected by credit events have increased to EUR14.5m from EUR10.2m a year ago, with the first loss allocation taking place last year. The interest coverage has improved to 3.0x from 2.6x, but the debt service ratios has decreased to 1.3x from 1.4x a year ago.
As a result of amortisation, loan concentration in the portfolio has naturally increased. The 10 largest exposures now make up over 80% of the pool balance, an increase of approximately 18% from a year ago.
The largest exposure in the transaction, accounting for 31% of the principal balance, is secured by 18 office properties let to the State of Hessen on long leases. While its debt yield is low, even lower German government bond yields improve the prospects of refinancing in December 2013, despite the size of the loan, (EUR101.7m syndication portion of a EUR745.8m loan) and the strains in the German commercial real estate lending market.
STABILITY is a synthetic securitisation of commercial mortgage loans originated by IKB Deutsche Industriebank AG, with the notes collateralised by debt instruments issued by Kreditanstalt fur Wiederaufbau (‘AAA’/F1+). As per the April 2013, STABILITY provided credit protection for a portfolio of 61 commercial mortgage loans to 36 debtor groups. While 24 large claims granted to special-purpose vehicle (SPV) borrowers represent approximately 73% of the current pool balance, the remainder consists of generally small secured loans with recourse to non-SPV borrowers.
A downgrade of the transaction will become more likely should the largest loan not repay at or close to its maturity date in December 2013. Also a further deterioration in the credit metrics of the outstanding loans would increase the likelihood of a downgrade.
A performance update will shortly be available on www.fitchratings.com.