August 21, 2012 / 3:57 PM / 5 years ago

TEXT-S&P cuts London & Regional Debt Securitisation No. 1 ratings

OVERVIEW 
     -- We have lowered our ratings on the class A and B notes due to our view 
of the increased risks associated with the upcoming loan maturity, and the 
tail period of two years to legal final maturity.  
     -- London & Regional Debt Securitisation No. 1 is a U.K. CMBS transaction 
that closed in 2005. 
     -- These ratings are based on our criteria for rating European CMBS. 
However, these criteria are under review. As a result of this review, our 
future European CMBS criteria may differ from the current criteria. The 
criteria change may affect the ratings on all outstanding notes in this 
transaction.
  
LONDON (Standard & Poor's) Aug. 21, 2012--Standard & Poor's Ratings Services 
today lowered to ' BBB (sf)' and removed from CreditWatch negative its credit 
rating on London & Regional Debt Securitisation No. 1 PLC's class A notes. At 
the same time, we have lowered to ' BBB- (sf)' our rating on the class B notes 
(see list below).

Today's rating actions reflect our view of the refinance risks associated with 
the upcoming loan maturity,the tail period of two years to legal final 
maturity. 

On Jan. 31, 2012, we placed our ratings on the class A notes on CreditWatch 
negative following the rating actions we took on the bank account holder (BNY 
Mellon) on Nov. 29, 2011, due to the application of our revised bank criteria 
(see "Standard & Poor's Applies Its Revised Bank Criteria To 37 Of The Largest 
Rated Banks And Certain Subsidiaries," published on Nov. 29, 2011, and "Banks: 
Rating Methodology And Assumptions," published on Nov. 9, 2011). 

London & Regional Debt Securitisation No. 1 is a secured loan U.K. commercial 
mortgage-backed securities (CMBS) transaction that closed on Nov. 29, 2005. 
The loan is due to mature on Oct. 15, 2012 and is backed by five properties, 
four of which are located in central London and one in Manchester. The loan 
has a senior loan balance of GBP234.2 million and a B-loan (GBP128.25 million). 
The B-loan does not form part of the securitization.

The securitized loan continues to perform well and benefit from stable 
financial ratios. The portfolio occupancy rate has remained at 100% since 
closing and rental income has increased as a result of fixed and upward-only 
rent reviews incorporated into the leases. However, refinance risk has 
increased since our last review in 2009 due to loan maturity in October 2012 
and the lease expiry of two properties: Trinity Bridge House (which has less 
than one year term certain remaining) and Skipton House (about four years term 
certain remaining). 

Trinity Bridge House is an eight-storey office building, located within a 
mixed-use area of Greater Manchester, approximately 3 kilometers (km) west of 
the city centre. The building, constructed in the late 1990s, is leased to the 
Secretary of State for the Environment, for a term expiring in 2013. The rent 
review mechanism permits a fixed rental uplift every five years, at a rate of 
4% a year compounding. We consider the rent to be over-rented due to the fixed 
rent-review patterns. The uncertain intentions of the existing tenant, a 
general lack of consumer confidence, and business occupier demand in the area 
have caused greater stress on the sustainable income from the property. 

Skipton House is a modern, seven-storey office building constructed in the 
early 1990s with a total floor area of 20,247 square meters (sq m). The 
property is located close to the Elephant and Castle roundabout, about 1.5 km 
south of the River Thames, within the London Borough of Southwark. The entire 
building is let to the Secretary of State for the Department of Health on a 
lease expiring in 2016. In our opinion, the short lease term until expiry and 
secondary location of the asset within its sub-market increase refinancing 
risk. 

The three other properties are located in central London and continue to 
benefit from strong market fundamentals. Of the portfolio income, 66% is let 
to the Secretary of State and the remainder is let to multinational companies 
with a weighted-average unexpired lease term of 6.6 years. 

In our opinion, the increased refinance risk in light of the upcoming loan 
maturity in October 2012 outweighs the positive credit indicators. In 
addition, the two-year tail period places further pressure on the ability to 
workout the loan. We have therefore lowered to 'BBB (sf)' and removed from 
CreditWatch negative our rating on the class A notes. At the same time, we 
have lowered to 'BBB- (sf)' our rating on the class B notes.

POTENTIAL EFFECTS OF PROPOSED CRITERIA CHANGES

We have taken today's rating actions based on our criteria for rating European 
CMBS. However, these criteria are under review (see "Advance Notice of 
Proposed Criteria Change: Methodology And AssumptionsRELATED CRITERIA AND RESEARCH

     -- Criteria Methodology Applied To Fees, Expenses, And Indemnifications, 
July 12, 2012
     -- Standard & Poor's Ratings Definitions, June 22, 2012
     -- Request For Comment: CMBS Global Property Evaluation Methodology, June 
4, 2012
     -- Counterparty Risk Framework Methodology And Assumptions, May 31, 2012
     -- Request For Comment: Methodology For Rating Debt Issues Based On 
Imputed Promises, Feb. 10, 2012 
     -- Advance Notice of Proposed Criteria Change: Methodology And 
Assumptions For Rating European Commercial Mortgage-Backed Securities, Nov. 8, 
2011
     -- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology 
And Assumptions, June 14, 2011 
     -- Principles Of Credit Ratings, Feb. 16, 2011 
     -- Timeliness of Payments: Grace Periods, Guarantees, And Use of 'D' And 
'SD' Ratings, Dec. 23, 2010 
     -- Methodology: Credit Stability Criteria, May 3, 2010 
     -- Global Methodology For Rating Interest-Only Securities, April 15, 2010 
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009 
     -- Understanding Standard & Poor's Rating Definitions, June 3, 2009 
     -- Standard & Poor's Revises Criteria Methodology For Servicer Risk 
Assessment, May 28, 2009 
     -- European Legal Criteria For Structured Finance Transactions, Aug. 28, 
2008 
     -- Framework For Credit Analysis In European CMBS Transactions, May 21, 
2007 
     -- Weighing Country Risk In Our Criteria For Asset-Backed Securities, 
April 11, 2006 
     -- Rating U.S. CMBS In The Face Of Interest Shortfalls, Feb. 23, 2006 
     -- Technical Challenges In European CMBS Structures, Feb. 16, 2006 
     -- European CMBS Loan Level Guidelines, Sept. 1, 2004 
     -- European CMBS Monthly Bulletin, published monthly
  
RATINGS LIST 

Class                  Rating
            To                     From

London & Regional Debt Securitisation No. 1 PLC
GBP234.2 Million Commercial Mortgage-Backed Floating-Rate Notes

RATING LOWERED AND REMOVED FROM CREDITWATCH NEGATIVE

A           BBB (sf)                AA+ (sf)/Watch Neg

RATING LOWERED 

B           BBB- (sf)               AA (sf)

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