OREANDA-NEWS. Fitch Ratings has downgraded three classes of Infinity 2006-1 "Classico" and affirmed the rest as follows:

EUR158.3m class A (FR0010379347) downgraded to 'Asf' from 'AA+sf'; Outlook Stable
EUR33.7m class B (FR0010379354) downgraded to 'Asf' from 'AA+sf'; Outlook Stable
EUR64.9m class C (FR0010379362) downgraded to 'Asf' from 'A+sf'; Outlook Stable
EUR66.5m class D (FR0010379370) affirmed at 'BBBsf'; Outlook Stable
EUR9.6m class E (FR0010379388) affirmed at 'BBBsf'; Outlook Stable

Infinity 2007-1 "Classico" is a fully funded synthetic securitisation of one loan originated by Natixis, whose ratings are aligned with its parent, Groupe BPCE (GBPCE; A/Stable/F1). The loan is backed by commercial real estate property in Italy.

The downgrades reflect Fitch's revised view of excessive counterparty risk. External support for GBPCE, and consequently Natixis, is viewed by Fitch as possible but no longer sufficiently likely to be forthcoming that it can be relied upon (see Fitch Affirms Groupe BPCE at 'A'; Stable Outlook published 3 July 2014 for further detail).

KEY RATING DRIVERS

All of the proceeds from the notes' issue are held by Natixis. While the bank account with Natixis is subject to replacement rating triggers, a jump-to-default of Natixis would lead to note default. Such an exposure to a single counterparty is viewed as excessive, and Fitch no longer considers implied state support for the bank capable of mitigating this linkage. Accordingly Fitch is capping the ratings of the notes at GBPCE's Issuer Default Rating (IDR) of 'A'/Stable.

The transaction is secured by a single loan known as Chianti, which is backed by 24 office and retail properties across Italy, the majority of which are in the north. The original loan maturity elapsed in June 2013, at which point a three-year extension option was exercised. The original interest rate swap also expired in June 2013 and has been replaced with an interest rate cap for the extension period struck at 3%. Low prevailing interest rates have allowed the interest cover ratio (ICR) to increase to 19.43x from 9.43x a year ago.

Five properties were sold out of the portfolio over the last 12 months, resulting in a combined repayment of EUR12.4m, which was allocated to the notes on a sequential basis. The borrower's strategy to date has been to target sales of the smaller retail warehouse assets while retaining the larger offices, which provide the bulk of rental income.

With no release premium payable above each asset's allocated loan amount (ALA) the disposals have not allowed a further deleveraging of the loan. Adverse selection of remaining assets could therefore expose junior notes to assets that have the highest propensity to falls in value. However, this risk is reduced by the loans' low leverage, high excess rental income (which could facilitate further deleveraging should the loan fail to repay at maturity) and value- improving capital expenditure undertaken by the borrower (approximately EUR10m over the last four years, wholly funded from equity), which should help preserve property values.

Despite a fairly short weighted average lease term of 2.8 years, Fitch considers the remaining properties to be generally good quality. The portfolio is well-let, with reported occupancy at 99.7% and the vast majority of income paid by investment-grade tenants. In conjunction with the moderate leverage (reported as 59%; Fitch estimates a 'Bsf' LTV of 81%), this supports the investment-grade ratings on the notes. As a synthetic deal, the ratings are not constrained by the legal uncertainty surrounding loan recovery, but are now constrained by the rating of Natixis.

Fitch estimates 'Bsf' recovery proceeds totalling EUR407m.

RATING SENSITIVITIES

Failure to hasten the progress of property disposals, particularly without a stabilisation in lease term or market conditions, could lead to further downgrades on the junior notes as loan maturity approaches. Any downgrade in the IDR of Natixis would lead to a corresponding downgrade of the senior note classes.

DUE DILIGENCE USAGE

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 servicer as at June 2015
-Transaction reporting provided by servicer as at April 2015