DBRS Comments on Indus (Eclipse 2007-1) plc Under Review – Negative Implications

DBRS has completed its review of the transaction which was placed Under Review with Negative Implications back in December 2009 and expects to have a decision on the ratings in the upcoming months following the impact of the upcoming maturity of the largest loan within the transaction, Adelphi, 27.2% of the transaction by balance.

The Adelphi loan is scheduled to mature on the next interest payment date (IPD), in October 2011. The whole loan of £248 million is comprised of an A-note and a subordinate B-note. The A-note, with an outstanding balance of £212.3 million is in the trust while the subordinate B-note of approximately £35.8 million is held outside the trust. There is also a long-dated interest rate swap through 2016 on the whole loan that is currently a liability of the borrower ranking senior to the noteholders of the Indus transaction. It is estimated that the mark-to-market on the long-dated swap to be a liability of approximately £35 million. As such the refinance dynamics of the Adelphi loan must take the swap liability into account. The A-note with the swap liability would have an estimated refinance DSCR of approximately 1.35x; accounting for the B-note would result in a DSCR at 1.21x. Both DSCRs take into consideration the current low interest rate environment with a refinance constant of 4.77%. The most recent valuation was completed in November 2010, valuing the asset at £265 million resulting in a loan-to-value at 93.6% on the whole loan and exceeding 100% when factoring in the mark-to-market on the interest rate swap.

There is over 40% of the transaction in special servicing. Future actions will take into consideration all expected outcomes of the specially serviced loans as well as the updated performance of current loans. Based on the percent of loans in special servicing, the successful refinance of the Adelphi loan would be applied to the waterfall sequentially, tempering the rating actions on Classes A, B and C. It is anticipated DBRS will have an update on the Adelphi loan status prior to the October IPD.

Note:
All figures are in British Pound Sterling unless otherwise noted.

The applicable methodologies are European CMBS Methodology and CMBS European Surveillance Methodology and which can be found on our website under Methodologies.