DBRS Confirms Windermere XII FCC

DBRS has today confirmed the ratings of Windermere XII FCC (Windermere) as follows:

Class A at BBB (sf) with a Negative trend
Class X at AAA (sf) with a Stable trend.

The transaction is secured by an office property known as Coeur Défense, which is located in the La Défense submarket of Paris, France.

Just over one year of the loan closing, the loan’s sponsor, an entity of Lehman Brothers, filed for insolvency. Since that time, the asset and its cash flows have been in the sauvegarde proceedings. In February 2010, this ruling was successfully appealed, however, in March 2011, a Cour de Cassation ruling deemed it uncertain that the local appeal court’s decision is unchallengeable in law. As a result, the case related to the sauvegarde proceedings has been sent to the appeal court for Versailles and is expected to be heard before the end Q4 2011. As of this date, it is uncertain what the court decision will be and the resulting plan for the future of the loan or any potential re-structuring. The continued uncertainty due to the court involvement in the administration of the loan, is the basis for the Negative trend on Class A.

As of the March 2011 rent roll, the property is 62% occupied, which is an improvement over the 56% occupancy rate reported with the June 2010 rent roll. There is, however, concern with lease breaks and lease expiries at the subject between now and the final rated maturity of the bonds. Between now and 2014, 21.5% of the leases have an expiry or break, and between 2015 and 2017, an additional 75% of the leases have an expiry or break.

Despite the improvement in occupancy at the property, the cash flow generated has been insufficient to pay bondholders their due interest and as a result, draws have been made from the transactions liquidity facility to make up the shortfalls. The information provided to DBRS as of this date states that there are sufficient funds in the liquidity facility to pay interest on the bonds through the final rated maturity date in 2017.

The most recent appraisal revealed a vacant possession value of approximately €972 million. The vacant possession value is believed to be sufficient to repay a full draw on the liquidity facility and estimated fees associated with a liquidation, in addition to the €776 million Class A notes in full. While a liquidation today is not expected because of the sauvegarde proceedings, in addition to the structural features of the transaction that can keep interest current to the note holders over the coming years, the supply and demand dynamics for office space from tenants with large floor plate needs (as offered at the subject property) is not expected to be in favour of the asset in the near term.

DBRS has kept the Class A notes on Negative trend as a result of the fact that it is possible for the continued court involvement in the administration of the loan to have negative implications to the bonds. Additionally, there is significant lease rollover prior to the final rated maturity of the bonds. DBRS has confirmed Class X based on the definition within the transaction documents that allow for it to receive the greater of zero or any excess interest in pari-passu priority with Class A.

Note:
All figures are in Euros unless otherwise noted.

The principal methodology applicable is CMBS Global Surveillance and European CMBS Rating Methodology which can be found on our website at www.dbrs.com under Methodologies.

For additional information on DBRS European CMBS Methodologies, please see European Disclosure Requirements, located at http://www.dbrs.com/research/237777.