Sept 13 (The following statement was released by the rating agency)
Fitch Ratings has taken various rating actions on Opera Finance CMH p.l.c. as follows:
EUR243.4m Class A (XS0241931442) affirmed at 'Bsf'; Outlook Stable
EUR50m Class B (XS0241934628) upgraded to 'Bsf' from 'CCCsf'; Outlook Stable
EUR40m Class C (XS0241935195) downgraded to 'Csf' from 'CCsf'; RE20%
EUR35m Class D (XS0241935609) affirmed at 'Csf'; RE0%
KEY RATING DRIVERS
The various rating actions are driven by an expectation that collateral liquidation proceeds standing to the credit of the issuer principal account will be sufficient to repay the class A and B notes, leaving the other notes facing major shortfalls. However, Fitch understands that the means of achieving this intended sequential outcome will involve the notes being declared in default, since the post-enforcement issuer principal waterfall reportedly provides for the desired level of certainty of execution. The imminence of an event of default constrains the rating of the classes A and B notes in spite of the prompt remedy and full redemption anticipated for these notes.
Since Fitch's previous rating in November 2012, the sole loan defaulted at maturity (January 2013) and was transferred into special servicing. The loan, which has since been accelerated and cancelled, was secured by 16 Irish properties, the majority located in Dublin. In April 2013, the property portfolio was revalued at EUR275.1m, up from EUR251.1m reported in October 2012. Liquidation generated a stronger outcome for creditors: on 22 July 2013, the sale of the portfolio was completed by the receivers Ernst & Young, yielding EUR306m in proceeds that were credited to the issuer but remain on deposit. Of this some EUR302.7m are expected to be available for distribution to note-holders after senior expenses are deducted.
There is reportedly insufficient clarity in the documents with respect to how this amount would be distributed among note-holders were it simply paid out at the earliest opportunity. Conventionally, recovery proceeds are distributed sequentially, honouring the concept of subordination on which tranched issuance common in securitisation is based. The special servicer convened an Extraordinary General Meeting for each class of notes in the hope of executing an early redemption deed that would allow for a distribution of net proceeds in such a fashion as to redeem the class A notes, with the excess to be split among the other classes.
The class D note-holders vetoed this amendment. In order to give effect to the concept of subordination, the special servicer has decided to withhold the proceeds until such time (expected to be January 2014) as the cumulative deficiency of interest earned on account in relation to what accrues on the notes is sufficient to produce an interest shortfall on the class A notes, which is a note event of default. While the funds released following enforcement of issuer security would be allocated to the notes sequentially (either on the interest payment date (IPD) or in the days following) and should clear the shortfall on and redeem in full the classes A and B notes, as this is dependent on a payment interruption it precludes a higher rating being assigned to these notes. It would also result in a full write-down of the class D and cause the class C notes to suffer a loss estimated by Fitch at 80%.
Any delay in or challenge to the distribution of principal against this schedule could have a negative effect on the ratings of the classes A and B notes.