DBRS Upgrades Ratings of Class B and Confirms Class X on Indus (Eclipse 2007-1) PLC

DBRS Ratings Limited (DBRS) has today upgraded its rating on the Class B of Commercial Mortgage-Backed Floating-Rate Notes Due January 2020 issued by Indus (Eclipse 2007-1) PLC as follows:

-- Class B at AAA (sf) from BB (sf)

Additionally, DBRS has confirmed the rating of the Class X in the transaction.

-- Class X at AAA (sf)

All trends are Stable.

The rating upgrade on Class B reflects the resolution of three of the four loans remaining since the last review and the stable performance of the sole outstanding loan expected to mature in January 2017. This transaction originally consisted of 14 fixed-rate loans and five floating-rate loans secured by 366 residential and commercial properties located throughout England, Wales and Scotland. The original securitised balance of the pool was GBP 894.43 million. Since closing, 18 of the 19 loans have been repaid and the current total transaction balance has decreased to GBP 55.0 million or 93.8% collateral reduction since issuance.

Since the last review, Criterion Loan, and The Sol Central, representing 60.7% and 8.6% of the pool balance, respectively, were repaid in full in advance of the scheduled maturity in June 2015 and July 2015, respectively. The Amsterdam loan, which was in special servicing since October 2014, has been liquidated for an amount of GBP 2.930 million, equivalent to the last appraised value.

The sole outstanding loan, NOS 2 LTD and NOS 3 LTD, has an outstanding balance of GBP 55.0 million, which represents a 42.3% collateral reduction since issuance (GBP 95.6 million) due to the property disposals and a repayment of GBP 10.0 million in October 2014. The loan is currently secured by 222 retail premises throughout England and Scotland and five properties were disposed during the last twelve months. The properties are primarily ground-floor retail with residential or office space on the upper floors and are located in secondary markets.

According to the March 2016 Investor Report, the vacancy rate for the outstanding portfolio increased to 22.8% from 18.7% last year and 9.6% at closing in 2007. Given the granularity of the portfolio, the largest property accounts for 5.6% of the total market value and the top five tenants represent 14.5% on the portfolio’s net operating income (NOI). The current debt service coverage ratio is 1.49x following a reported quarterly NOI decline of 20.4% to GBP 1.1 million from GBP 1.5 million a year ago. Per the Investor Report’s comments, the drop in the NOI is due to increased expenses caused by rental payments in arrears and lease expiration adjustments. Additionally the NOI decline can be partially attributed to the disposable of five properties.

The loan-to-value ratio was 48.7% as of March 2016 and is based on the appraiser’s valuation of GBP 111.2 million in October 2012. No new valuations have been performed since then. The loan is subject to an interest coverage ratio (ICR) covenant of 1.10x which, per the latest ICR reported figure of 1.49x, is not at any risk of being triggered at this point in time. The loan is expected to mature in January 2017.

The liquidity facility will be available to be drawn to cover scheduled interest payments, loan protection and swap cost. The liquidity facility committed amount is 9% of the outstanding principal balance of the loans, which is equivalent to GBP 5.4 million based on the most recent transaction balance.

Notes:
All figures are in GBP unless otherwise noted.

The principal methodology applicable is: European CMBS Surveillance.

The applicable methodologies are: European CMBS Surveillance, European CMBS Rating Methodology, Legal Criteria for European Structured Finance Transactions, Derivative Criteria for European Structured Finance Transactions and Unified Interest Rate Model for European Securitisations, which can be found on www.dbrs.com under Methodologies.

Other methodologies referenced in this transaction are listed at the end of this press release. This may be found on www.dbrs.com at http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to DBRS’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of information used for these ratings include the Delegate Servicer, Capita Asset Services (London) Limited.

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS considers the information available to it for the purposes of providing these ratings was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this transaction took place on 24 April 2015 when DBRS downgraded Class C and upgraded Class A of INDUS (ECLIPSE 2007-1) plc - See more at: http://dbrs.com/research/279202/dbrs-downgrades-one-class-and-upgrades-one-class-of-indus-eclipse-2007-1-plc.html

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

A decrease of 10% and 20% in the DBRS Net Cash Flow (NCF), derived by looking at comparable properties, market rents, market occupancies in addition to expenses ratios, capital expenditures and re-tenanting costs, would lead to a downgrade in the transaction, as noted below:

Class B Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class B at AAA (sf)
-- 20% decline in DBRS NCF, expected rating of Class B at AAA (sf)

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS’s outlooks and ratings are monitored.

For further information on DBRS historic default rates published by the European Securities and
Markets Administration (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Scott Goedken, Senior Vice President, EU CMBS
Initial Rating Date: 15 March 2007
Initial Rating Committee Chair: Erin Stafford, Managing Director, Global CMBS

Lead Surveillance Analyst: Jorge Lopez Herguido, Financial Analyst, Global CMBS
Rating Committee Chair: Erin Stafford, Managing Director, Global CMBS

DBRS Ratings Limited
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The rating methodologies used in the analysis of this transaction can be found at:
http://www.dbrs.com/about/methodologies.

-- European CMBS Surveillance
-- European CMBS Rating Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Unified Interest Rate Model for European Securitisations

A description of how DBRS analyses structured finance transactions and how the methodologies
are collectively applied can be found at: http://www.dbrs.com/research/278375.