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Fitch downgrades Alburn Real Estate Capital Limited
March 7, 2013 / 2:26 PM / 5 years ago

Fitch downgrades Alburn Real Estate Capital Limited

March 7 (Reuters) - (The following statement was released by the rating agency) Fitch Ratings has downgraded Alburn Real Estate Capital Limited’s class A, B and C notes and affirmed the class D and E notes (all due in October 2016) as follows: GB50.8m Class A (XS0285749833) downgraded to ‘Csf’ from ‘CCCsf’; Recovery Estimate RE25% GBP19.8m Class B (XS0285751904) downgraded to ‘Csf’ from ‘CCsf’; RE0% GBP18.5m Class C (XS0285753272) downgraded to ‘Csf’ from ‘CCsf’; RE0% GBP18.5m Class D (XS0285753942) affirmed at ‘Csf’; RE0% GBP5.4m Class E (XS0285755053) affirmed at ‘Csf’; RE0% KEY RATING DRIVERS The downgrade of the senior notes reflects the insufficient residual collateral value in the transaction to repay the class A notes in full by their maturity in October 2016. Fitch estimates that 25% of the senior tranche’s current balance will be ultimately recovered, whereas all mezzanine and junior tranches will be written off without any further principal payments. Asset sales commenced in July 2012, more than a year after the loan defaulted due to an uncured interest coverage ratio and loan-to-value ratio covenant breaches. Enforcement had been delayed by the actions of the junior lender which exercised its right to nominate a special servicer (although the non-securitised junior piece could realistically not expect any principal recoveries). A noteholder vote against the lender’s plans and a dismissed court case ended the interference. Since then, nine individual assets have been sold piecemeal as well as 29 marketed in bulk and known as the Ruby Portfolio. As five of the Ruby assets (on long leasehold) still await consent from the respective landlords, 33 sales have been completed to date for GBP80.4m. The respective assets were valued at GBP93.6m in April 2012. The individual sales typically achieved prices close to/in excess of the valuation while the Ruby portfolio was sold for approximately 20% less than its 2012 value due to the declining weighted average lease length and occupancy level. After deducting sales costs and senior expenses (including swap breakage), net proceeds of GBP70.6m were allocated towards the redemption of the class A notes. The resulting advance rate of the senior notes stands at approximately 200%, and will increase further once the landlords authorise the remaining five Ruby sales (below 2012 value). Of the then remaining eight assets, three are not income-producing; and a large portion of in-place portfolio rent is scheduled to expire in 2013. Fitch incorporated these characteristics in its recovery projections. RATING SENSITIVITIES As Fitch already expects an ultimate default of all note tranches, the asset disposal timing will not further affect the ratings, but could result in a different recovery rate from Fitch’s projection of 25% for the class A notes.

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