OREANDA-NEWS. Fitch Ratings is maintaining Ulysses (European Loan Conduit No. 27) classes A to C notes on Rating Watch Negative (RWN) as follows:

GBP249m class A (XS0308745107): 'BBsf'; remains on RWN

GBP76m class B (XS0308747657) 'Bsf'; remains on RWN

GBP48m class C (XS0308748200) 'B-sf'; remains on RWN

The RWN, on which the notes were placed following the Brexit vote on 6 July 2016 ("Fitch Downgrades Ulysses (European Loan Conduit No. 27) Class A Notes; Places on RWN", 6 July 2016 on www. fitchratings. com), reflects uncertainty over the resolution of the underlying defaulted loan as a result of weaker sentiment over London's commercial real estate market.

The transaction is a standalone securitisation of one commercial mortgage loan that was originated by Morgan Stanley Bank International Limited. At closing, the issuer used the proceeds of the note issue to acquire the mortgage loan, which has a total outstanding balance of GBP429m (GBP535 whole loan) and is secured by a single office tower (known as City Point) located in the city of London.

KEY RATING DRIVERS

The RWN reflects deterioration in market confidence for London City offices following the UK vote to leave the EU. It also reflects falling gross passing rent to GBP23.5m in May 2016 from GBP28.9m in August 2015, as well as complexity arising from the existence of a purchase option over the underlying A-note in the hands of the (non-securitised) B-note holder. In Fitch's view, these factors (see rating action commentary dated 6 July 2016) have reduced the likelihood of the defaulted loan being resolved before legal final maturity (July 2017), despite some progress in extending and renewing the rental profile.

The RWN reflects Fitch's view that uncertainty created by the vote will complicate efforts to resolve the loan in the near term. A valuation from December 2014 reported market value of GBP498.5m. Since then, market conditions initially improved before abruptly deteriorating following the vote.

The vote's impact on market conditions will be assessed as more signs emerge from transaction evidence and from wider progress with Brexit negotiations. Should a property sale be achieved ahead of bond maturity, the likelihood of the notes being repaid in full will depend on their seniority, as reflected in the ratings. We expect the class A notes to still see meaningful protection against value declines.

RATING SENSITIVITIES

The approaching legal final maturity puts downward pressure on the ratings. Should the loan fail to be resolved in the short-term, the notes may be downgraded further.

Fitch estimates 'Bsf' recoveries to the notes (after costs/senior liabilities) of between GBP380m and GBP400m.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10

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

DATA ADEQUACY

Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Fitch did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. The subsequent performance of the transaction over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION

The information below was used in the analysis.

- Loan-by-loan data provided by Mount Street LLP as at May 2016

- Transaction reporting provided by Wells Fargo as at May 2016