May 18, 2017 / 4:28 PM / in 7 months

Fitch Affirms Telereal Transactions

(The following statement was released by the rating agency) LONDON, May 18 (Fitch) Fitch Ratings has affirmed Telereal Secured Finance Plc's and Telereal Securitisation plc's (together, Telereal) fixed-rate notes due December 2033 as follows: Telereal Secured Finance Plc: GBP418.4m secured bond (XS0987936076) affirmed at 'BBB+sf'; Outlook Stable Telereal Securitisation plc: GBP203.6m class A-3 notes (XS0139445471) affirmed at 'AAsf'; Outlook Stable GBP347.8m class A-4 notes (XS0139446362) affirmed at 'AAsf'; Outlook Stable GBP250.8m class A-5 notes (XS0186854930) affirmed at 'AAsf'; Outlook Stable GBP89.0m class A-6 notes (XS0186855077) affirmed at 'AAsf'; Outlook Stable GBP56.1m class A-7 notes (XS0274201762) affirmed at 'AAsf'; Outlook Stable GBP137.8m class A-8 notes (XS0274204865) affirmed at 'AAsf'; Outlook Stable GBP215.0m class B-2 notes (XS0139654635) affirmed at 'BBB+sf''; Outlook Stable GBP35.0m class B-3 notes (XS0140277772) affirmed at 'BBB+sf'; Outlook Stable GBP290.5m class B-4 notes (XS0186855150) affirmed at 'BBB+sf'; Outlook Stable GBP112.4m class B-5 notes (XS0186855234) affirmed at 'BBB+sf'; Outlook Stable GBP195.0m class B-6 notes (XS0274208007) affirmed at 'BBB+sf'; Outlook Stable GBP193.4m class B-7 notes (XS0275282878) affirmed at 'BBB+sf'; Outlook Stable GBP128.3m class C-1 notes (XS0275279064) affirmed at 'BBB+sf'; Outlook Stable GBP58.0m class C-2 notes (XS0275282282) affirmed at 'BBB+sf'; Outlook Stable The Telereal transactions are securitisations of two fully amortising loans secured by rental cash flows derived from a portfolio of operational properties occupied by British Telecommunications plc (BT; BBB+/Stable) and located throughout the UK. BT has the option to vacate properties with an aggregate annual rent of GBP8.1 million without making compensation payments. According to the March 2017 investor report, GBP1.2 million has been granted but not yet vacated by BT. Fitch adjusted the projected rental income accordingly. KEY RATING DRIVERS The affirmations of Telereal Secured Finance Plc's secured bond and Telereal Securitisation Plc's class B and C notes reflect BT Group plc's rating (reviewed on 24 April 2017, "Review - No Action", thus maintaining the rating at BBB+/Outlook Stable). All notes are scheduled to fully amortise by the maturity date in 2033, with debt service covered by rental income paid by BT. The affirmation of Telereal Securitisation Plc's class A notes reflects Fitch's view that vacant possession value (VPV) of the underlying properties in a 'AAsf' rating stress is adequate to cover the class of notes. In its 'AAsf' scenario, Fitch assumes BT defaults. Much of the portfolio occupies urban space with high land value (73% by value is in London and southeast England). Nevertheless, Fitch assumes the Telereal Securitisation Plc portfolio remains in its current use, athough this is likely to offer overall lower value given the public interest in preserving the UK's fixed line telecoms infrastructure. Fitch expects that an alternative tenant would have rent set under arbitration in line with industrial properties. Current passing rent across the portfolio is generally lower than local prime industrial rents (according to Cushman and Wakefield data). This headroom provides additional cushion in case of tenant default. Fitch views day one tenant default as the most stressful scenario. The class A notes stand a very high chance of being repaid in full with portfolio quality broadly average, given class A loan to value of 27% (based on the 2016 VPV). Fitch has tested that this holds under 'AAsf' assumptions. For the South East and Rest of UK portfolios, respectively, the 'AAsf' assumptions applied are: capitalisation rates of 9.36% and 9.16%, rental value declines of 18.1% and 14.3%, structural vacancy of 15.65% and 43.2%, and depreciation of 3% (for both). RATING SENSITIVITIES Any rating action on BT would lead to a corresponding change in the ratings of the class B and C notes. The rating of the class A notes is sensitive to drivers of long-term occupational demand for the specialised properties comprising the pool, which depends on, among other things, technological developments, the telecommunications regulatory environment in the UK, industrial rents and alternative uses of the properties. DUE DILIGENCE USAGE Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. SOURCES OF INFORMATION: The sources of information used to assess these ratings were the issuer, servicer, and periodic investor reports (dated March 2017). Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. Fitch did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. The subsequent performance of the transaction over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable. Overall and together with the assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. Contacts: Lead Surveillance Analyst Mario Schmidt Associate Director +44 20 3530 1042 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chairperson Euan Gatfield Managing Director +44 20 3530 1157 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Structured Finance Rating Criteria (pub. 03 May 2017) here Rating Criteria for Commercial Mortgage-Backed Securities (CMBS) and Loans in EMEA (pub. 23 Dec 2016) here Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 20 Mar 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 20 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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