Fitch Takes Various Actions on Two Taberna Europe CDOs

NEW YORK--()--Fitch Ratings has upgraded the rating on one and affirmed the ratings on seven classes of notes from two European collateralized debt obligations (CDOs) as follows:

Taberna Europe CDO I P.L.C. (Taberna Europe I)

--EUR218,678,543 class A1 notes upgraded to 'BBsf' from 'Bsf'; Outlook Stable;

--EUR90,500,000 class A2 notes affirmed at 'CCsf';

--EUR50,706,156 class B notes affirmed at 'Csf';

--EUR32,222,480 class C notes affirmed at 'Csf';

--EUR35,777,774 class D notes affirmed at 'Csf';

--EUR26,274,443 class E notes affirmed at 'Csf'.

Taberna Europe CDO II P.L.C. (Taberna Europe II)

--EUR356,506,493 class A1 notes affirmed at 'CCCsf';

--EUR95,000,000 class A2 notes affirmed at 'CCsf'.

KEY RATING DRIVERS

The upgrade for class A1 notes in Taberna Europe I is due to the deleveraging of the senior class in the capital structure as a result of collateral redemptions, which in turn increased credit enhancement levels, and a diminished risk of interest shortfall due to the expiration of the deferred structuring and placement fee in May 2015. The affirmation of the notes in Taberna Europe II is reflective of the high risk of interest shortfall to the non-deferrable classes. In both transactions, the credit migration of the underlying collateral marginally improved since last review.

Paydowns in both transactions were mainly from collateral redemptions of two assets in each portfolio. The class A1 notes received 16.9% of the last review balance of $263 million in Taberna Europe I and 11.8% of the $357 million balance in Taberna Europe II.

The percentages of distressed assets that are currently not paying interest are 25% and 20%, in Taberna Europe I and Taberna Europe II, respectively. The high percentage of non-performing assets, combined with out-of-the money interest rate swaps, continue to contribute to the risk of interest shortfall in both transactions.

This risk is more remote in Taberna Europe I, in which the deferred structuring fee, which in the past comprised a substantial portion of interest collections, expired in May 2015. However, in Taberna Europe II, the deferred structuring fee continues to divert a large portion of interest collections, approximately a half thereof on the most recent payment date.

The Stable Outlook on class A1 notes in Taberna Europe I reflects Fitch's opinion that the rating is likely to remain at this level in the near-term future. Fitch does not assign Outlooks to notes rated below 'Bsf'.

The portfolios in both transactions are comprised primarily of senior unsecured, subordinate debt, and Trust Preferred Securities (TruPS) issued by real estate companies, and make up 67.1% of the portfolio in Taberna Europe I and 50.4% in Taberna Europe II. The remaining exposure consists of securities issued by financial companies, commercial mortgage backed securities, and commercial real estate debt.

This review was conducted under the analytical framework described in the reports 'Global Rating Criteria for Structured Finance CDOs', and 'Global Rating Criteria for Corporate CDOs'. The transactions were analyzed within the framework of Fitch Portfolio Credit Model (PCM), and the PCM rating loss rates (RLR) for various rating stresses were compared to the notes' credit enhancement (CE) levels. The transactions were not analyzed within a cash flow model framework, as the impact of structural features and excess spread was determined to be minimal in the context of these CDO ratings. Fitch also considered additional qualitative factors in its analysis to conclude the rating actions for the rated notes. While in Taberna Europe II, the class A-1 CE levels are sufficient to cover the 'Bsf' RLR, the notes were affirmed at 'CCCsf' due to the interest shortfall risk, as described above.

RATING SENSITIVITIES

The non-deferrable classes in each of these two transactions could experience interest shortfalls and be downgraded to 'Dsf' if there are significant new defaults or deferrals.

DUE DILIGENCE USAGE

No third party due diligence was reviewed in relation to this rating action.

Additional information is available at www.fitchratings.com.

Sources of Information: The sources of information used to assess these ratings were periodic trustee reports and the public domain.

Applicable Criteria

Criteria for Sovereign Risk in Developed Markets for Structured Finance and Covered Bonds (pub. 20 Feb 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=862115

Global Rating Criteria for CLOs and Corporate CDOs (pub. 30 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868908

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Global Surveillance Criteria for Structured Finance CDOs (pub. 13 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867800

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=993392

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=993392

Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst:
Azadeh Sharif, +1-212-908-0874
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson:
Alina Pak, +1-312-368-3184
Senior Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Azadeh Sharif, +1-212-908-0874
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson:
Alina Pak, +1-312-368-3184
Senior Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
sandro.scenga@fitchratings.com