DBRS Upgrades One Class of INDUS (ECLIPSE 2007-1) plc

DBRS has today upgraded the ratings of INDUS (ECLIPSE 2007-1) plc (Indus or the Trust) as follows:

-- Class A to A (sf) from BBB (sf)

Additionally, DBRS has confirmed the ratings on the remaining classes in the transaction. The trends on all classes are Stable, with the exception of Class C, which carries no trend.

The rating upgrade to Class A is a result of continued stable performance of the outstanding loans in the transaction, increases in loan repayments and the better-than-expected outcome with loans previously in special servicing. The Adelphi loan, which transferred to special servicing in 2011, repaid the full GBP 212.29 million securitised loan and the super senior swap in April 2013. The Greater London Portfolio loan, which transferred to special servicing in 2011, liquidated from the Trust in April 2013 realizing a loss of GBP 22.27 million, significantly lower than the projected loss based on outstanding property valuations. Since the last DBRS rating action in June 2013, three loans have been paid in full at their scheduled maturity date in October 2013. Five of the six remaining loans continue to exhibit stable performance, including the largest loan in the pool, Criterion, discussed in detail below.

This transaction originally consisted of 14 fixed-rate loans and five floating-rate loans secured by 366 residential and commercial properties located throughout the United Kingdom. The original securitised balance of the pool was GBP 894.43 million. According to the April 2014 Remittance Report, there has been total collateral reduction of 72.5% since issuance.

As of the January 2014 Deal Summary Report, there is one loan in special servicing and two loans on the servicer’s watchlist, representing 10.7% and 5.0% of the current pool balance, respectively. The loans on the servicer’s watchlist are being monitored for their respective upcoming maturities, both of which occur in the next two quarters. DBRS is awaiting confirmation from the servicer on the borrowers’ abilities to secure refinancing capital. The specially serviced loan is highlighted below.

The Workspace Portfolio was originally secured by eight mixed-use properties (office and industrial) located throughout England. The loan transferred to special servicing in September 2011 for breach of the Interest Coverage Ratio covenant, which was a result of tenants vacating select properties. In January 2014, three of the properties were sold as one offering, with net sales proceeds of GBP 1.70 million. The proceeds were applied in the April 2014 Remittance Report; however, losses associated with the property dispositions will not be realized until the remaining five properties securing the loan are sold. Select properties are already being marketed for sale, while the remaining properties will be put on the market at a future date(s). The remaining five properties received an updated combined valuation of GBP 9.69 million in May 2014, significantly below the outstanding loan balance of £26.41 million. DBRS expects the trust to experience a loss with the resolution of this loan.

The largest loan in the transaction is the Criterion loan, representing 49.3% of the current pool balance. The loan is secured by a Class A office building in London’s West End neighborhood located directly above the Piccadilly Circus tube station. As of January 2014, the property remains 100% occupied with McKinsey and Co. occupying 63% of the net rentable area through September 2018. Other large space users include HSBC and Lillywhites. No current tenants’ leases expire prior to loan maturity in July 2015. The property continues to report stable quarterly cash flow of approximately GBP 2.69 million. The loan is accompanied by a long-dated interest rate swap expiring in 2022; however, given the subject’s stable cash flow and prime real estate location, DBRS does not view an associated swap breakage fee as an inherent risk.

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

The applicable methodologies are European CMBS Rating Methodology, European CMBS Surveillance, Legal Criteria for European Structured Finance Transactions and Unified Interest Rate Model for European Securitisations, all of which can be found on our website.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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.