Reuters: Financial Services and Real Estate: TEXT-Fitch downgrades Aquila (Eclipse 2005-1) class D

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TEXT-Fitch downgrades Aquila (Eclipse 2005-1) class D May 29th 2012, 16:12 Tue May 29, 2012 12:12pm EDT May 29 - Fitch Ratings has downgraded Aquila (Eclipse 2005-1) plc's class D notes and affirmed all other note classes as follows: GBP24.6m class A (XS0213759425): affirmed at 'AAAsf'; Outlook Stable GBP10.1m class B (XS0213759854): affirmed at 'AAAsf'; Outlook Stable GBP10.3m class C (XS0213759938): affirmed at 'AAAsf'; Outlook Stable GBP10m class D (XS0213760274): downgraded to 'CCCsf' from 'Asf'; Recovery Estimate 100% GBP1.7m class E (XS0213760431): affirmed at 'BBBsf'; Outlook Stable The downgrade of the class D notes reflects an interest shortfall which incurred at the April 2012 interest payment date (IPD) that in Fitch's opinion is unlikely to be fully recovered prior to the redemption of the notes. While interest payments are also reduced on the class E notes, this class is not in arrears on account of an available funds cap (AFC) applicable to it. For the class E notes, therefore, this reduction in interest has not resulted in credit impairment or rating action, whereas the class D notes, which are not subject to an AFC, are at risk of default. The reduction in interest distributions reflects progressive margin compression as higher-yielding loans repaid; the irrevocable switch to sequential pay previously triggered by the proportion of loans in special servicing rising above a threshold; and an increase in senior expenses as a proportion of the outstanding note balance. The latter has proved particularly difficult to predict owing to a rise in certain periodic costs, the incurrence of extraordinary expenditure, and the lack of quarterly provisioning of excess spread for scheduled costs levied annually in arrears. These three factors combined in an increase in senior costs paid at the April IPD, which contributed to an interest shortfall of circa GBP39,000 on the class D notes. With the only remaining loan (the GBP56.7m Great Victoria loan) due on 17 October 2012, there is little time in which to recover this unless either senior expenses reduce significantly (the chances of which appears remote) or the loan fails to repay on schedule. As to the latter, Fitch considers Great Victoria to be a high quality, low leverage credit: secured by three multi-tenanted retail and office properties located in London's West End, and with a reported 47.5% loan-to-value ratio and 13% exit debt yield, the borrower should face little impediment in securing refinancing in a timely manner. Although the strength of the loan works against the class D noteholders' chances of recovering the interest shortfall, it does underpin Fitch's Recovery Estimate of 100% of bond principal and investment grade ratings on all other classes (including the class E notes). Fitch will continue to monitor the performance of the transaction. A performance update report is available on www.fitchratings.com. Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. The sources of information used to assess these ratings were the issuer, servicer, and periodic cash manager and servicer reports. Applicable criteria, "EMEA CMBS Rating Criteria", dated 04 April 2012 and 'Global Structured Finance Rating Criteria', dated 4 August 2011, is available at www.fitchratings.com. Applicable Criteria and Related Research: EMEA CMBS Rating Criteria Global Structured Finance Rating Criteria Link this Share this Digg this Email Reprints

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