DBRS Downgrades One Class and Confirms Three of INDUS (ECLIPSE 2007-1) plc

DBRS Ratings Limited (DBRS) has today downgraded the ratings of INDUS (ECLIPSE 2007-1) plc (Indus) as follows:

-- Class C to C (sf) from CCC (sf)

In addition, DBRS has confirmed the ratings as follows:

-- Class A at BBB (sf)
-- Class B at BB (sf)
-- Class X at AAA (sf)

The ratings on Classes A and B have been placed Under Review with Positive Implications.

This transaction originally consisted of 14 fixed-rate loans and five floating-rate loans secured by 366 residential and commercial properties located in England and Scotland. The original securitised balance of the pool was £894,431,744. According to the April 2013 cash management report, nine of the original 19 loans remain in the pool, with a current securitised balance of £286,875,314. The pool has experienced a total collateral reduction of 67.93% since issuance.

An April 2013 RNS notice reported that the largest loan in the pool, Adelphi House, repaid in full the outstanding £212.29 million senior portion of the loan and the super senior swap. The loan was in special servicing since early 2011 for loan-to-value (LTV) default and weighted heavily on the outcome and analysis of the overall deal since that time. Classes A and B have been placed Under Review with Positive Implications as a result of the Adelphi loan paying in full and the impending loan maturities of four loans in 2013.

As of the April 2013 cash management report, there is a total of five loans on the servicer’s watchlist, representing 58.52% of the current pool balance. Four of these loans, representing 15.56% of the current pool balance, are on the servicer’s watchlist for upcoming loan maturity and one loan, representing 42.96% of the current pool balance, is on the servicer’s watchlist for breach of the interest coverage ratio (ICR) cash trap trigger.

The Workspace Portfolio, representing 9.35% of the current pool balance, is the only loan in special servicing. The collateral for the loan encompasses a portfolio of eight industrial and office properties positioned throughout England. The loan was transferred to special servicing in September 2011 for breach of the ICR covenant and future payment default. The performance of the loan began to decline in early 2011 due to several tenants vacating the property. According to the most recent investor report, the portfolio is currently 48.43% occupied. The special servicer appointed strategic advisors in March 2012 to formulate a business plan to minimize losses. Currently the servicer is implementing a disposal strategy, which is expected to commence during the first quarter of 2013. The loan was scheduled to mature in January 2013 yet failed to refinance at that time. The portfolio was recently valued in February 2012 at £15.01 million, resulting in an LTV of 176.98%, a significant decrease from 2006 when the portfolio was valued at £38.02 million, implying an LTV of 69.87%.

In addition to these difficulties, the loan is also accompanied by a long-dated interest rate swap. The swap currently has a significant negative mark-to-market value, which ranks senior to the lenders in the loan waterfall. DBRS assumes that the severity of the loss in an enforcement or liquidation scenario increases substantially when the mark-to-market value of the swap is taken into consideration. As a result of the estimated losses associated with this loan, DBRS has downgraded Class C.

DBRS has confirmed the rating of Class X at AAA (sf), with a Stable trend, based on the definition within the transaction documents that allow for this class to receive the greater of zero or any excess interest in pari passu priority with Class A.

Notes:
All figures are in U.K. pounds sterling unless otherwise noted.

The principal methodologies applicable are European CMBS Rating Methodology, European CMBS Surveillance, Legal Criteria for European Structured Finance Transactions, Unified Interest Rate Model, Swap Criteria for European Structured Finance Transactions, which can be found on www.dbrs.com.

The sources of information used for this rating include INDUS (Eclipse 2007-1) plc and Capita Asset Services (London) Ltd. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Lead Analyst: Scott Goedken
Rating Committee Chair: Mary Jane Potthoff
Initial Rating Date: 12 April 2007
Most Recent Rating Update: 2 March 2012