March 20 - Fitch Ratings says that the recent partial repurchase of Duncannon CRE CDO I PLC’s class A notes will not in itself impact the rating of the notes.
As per Condition 7 (h) of the Duncannon CRE CDO I PLC prospectus, the issuer may at any time, at the direction of the portfolio manager, purchase senior or mezzanine notes in the open market or in privately negotiated transactions, at a price not exceeding the notes’ par value. Under the buyback, the repurchase of EUR15m of the class A notes was undertaken at a discounted purchase price. The repurchased notes were subsequently cancelled, thereby marginally increasing the available credit enhancement to all rated notes. The buyback follows earlier buybacks of class A notes in 2009, 2010 and 2011.
The repurchase was funded using cash available in the principal collection account. As of January 2012, approximately EUR8m was available in the principal collection account. Generally, proceeds in the principal collection account can be used by the portfolio manager to invest in new portfolio assets, limited by the eligibility criteria, or they may be distributed to noteholders, if no such investment opportunity exists. Due to the funding of the repurchase of the class A notes, the amount of principal proceeds available for immediate distribution to the remaining noteholders will be substantially lower. At the same time, noteholders will benefit from an increase in credit enhancement due to the relative increase of assets compared with liabilities in the structure.
The second senior and mezzanine par value tests are currently breaching their limits. Fitch notes that all par value ratios will improve as a result of the repurchase. Consequently, the amount of interest required to be diverted on future payment dates to the senior notes to cure the par value tests may be reduced.
The notes are rated as follows:
EUR 2.5m class X: ‘BBsf’; Outlook Stable
EUR 240.0m class A: ‘Bsf’; Outlook Stable
EUR40.0m class B: ‘CCsf’
EUR 40.7m class C-1: ‘Csf’
EUR 20.4m class C-2: ‘Csf’
EUR 21.4m class D-1: ‘Csf’
EUR 21.4m class D-2: ‘Csf’
EUR 21.6m class D-3: ‘Csf’
EUR 22.4m class E-1: ‘Csf’
EUR 22.6m class E-2: ‘Csf’