OREANDA-NEWS. Fitch Ratings has affirmed FCT Nacrea's CMBS notes as follows:

EUR61.4m Class A (FR0010406058): affirmed at 'AAAsf'; Outlook Negative;
EUR29.8m Class B (FR0010406066): affirmed at 'BBBsf'; Outlook Negative.

FCT Nacrea is a CMBS transaction secured by one loan backed by a commercial real estate asset in the La Defense office precinct in Paris. Since the last rating action, the EUR39m Etoile Fusion loan has been repaid in full, with all but EUR6.6m repaid sequentially to the Class A notes.

KEY RATING DRIVERS
The affirmation is driven by the stable performance of the La Defense office market in which the property securing the low leverage CB3 loan is located. The Negative Outlooks persist due to rental income uncertainty stemming from the June 2016 lease expiry of the sole tenant, Societe Generale Asset Management (SGAM).

The CB3 property is in a good location within La Defense, but faces competition from newer developments. With vacancy in the submarket at around 12%, the property may suffer a period of void and/or reduced effective rents (net of tenant incentives) as a precursor to being re-let. Fitch expects that further information regarding the likelihood of renewal or extension will come to light within the final 12 months of the lease term (a customary notice provision in most French leases).

While there are rental market challenges and a lack of certainty over whether the current tenant will renew, the ratings are buoyed by the modest leverage of the CB3 loan borrower. The strength of interest coverage (20x+ under the current lease) and of the institutional equity at risk (the reported loan-to-value ratio is 46% based on a recent valuation) suggest the risk of loan losses are minimal.

However, timeliness of payments is less clear. If the loan is not repaid by its August maturity, the borrower's and servicer's joint priority should be to sign a lease renewal or else identify a replacement tenant, as this will boost the value of the property and therefore facilitate full debt repayment. Pending signing up new income, significant excess rent under the current contract (until June 2016) should also come under the control of the servicer to help remarket the space.

If the property ceases to be income-producing for a period - either from a full void period or even upon initiation of safeguard proceedings - the issuer's debt service would be covered for several years by drawing under a EUR21.9m liquidity facility. Together with a long tail period (bond maturity is in 2024), this should allow sufficient recoveries to be made to repay the notes.

Fitch estimates 'Bsf' proceeds of EUR140m.

RATING SENSITIVITIES
Failure to extend the SGAM lease or sign a new tenant will temporarily limit the exit options of the borrower and could see value deteriorate. This could lead to downgrades on the Class A notes. A lengthy loan workout could see significant drawdown on the liquidity facility and expose the Class B notes to increased senior costs of the issuer. These risk factors are consistent with the Negative Outlooks.