OREANDA-NEWS. August 03, 2015. Fitch Ratings has affirmed Meadowhall Finance Plc, as follows:

GBP512.9m class A1 (XS0278325476) affirmed at 'AAAsf'; Outlook Stable
GBP55.7m class A2 (XS0278327415) affirmed at 'AAAsf'; Outlook Stable
GBP141.0m class B (XS0278326441) affirmed at 'AAsf'; Outlook Stable
GBP94.5m class M1 (XS0278328496) affirmed at 'Asf'; Outlook Stable
GBP56.7m class C1 (XS0278329890) affirmed at 'BBBsf'; Outlook Stable

Meadowhall Finance PLC is a 2006 securitisation of a loan backed by a super-regional shopping centre located to the northeast of Sheffield, South Yorkshire. Since October 2012, the Meadowhall shopping centre has been owned by a JV between British Land and Norges Bank Investment Management. The class M1 and C1 notes are currently held by the issuer as reserve bonds. Subject to satisfying certain conditions, the borrower may draw down the underlying financing by placing these notes with investors.

KEY RATING DRIVERS
The affirmation reflects the stable performance of the Meadowhall shopping centre. The property is occupied by 281 tenants with a strong weighted average remaining lease term to first break of seven years. It was re-valued at GBP1.674bn in March 2015, up from GBP1.510bn a year earlier, and resulting in a reported loan-to-value ratio (LTV) of 42.4% (51.5% including the issuer-retained class M1 and C1 notes).

In the past 12 months passing rent decreased by 1.9% to GBP78.5m from GBP80.0m, reflecting a number of tenant defaults. Consequently, and also because of higher scheduled amortisation, debt service coverage has decreased slightly to 1.24x from 1.28x. Income is expected to remain strong until September 2025, when the first significant lease roll-offs arise (reflecting several 25-year leases signed by anchor tenants). While this exposes noteholders to occupational market conditions at that time, amortisation over the interim is scheduled to reduce the LTV to 30.4% (holding value constant and including the class M1 and C1 debt).

Moreover, the property is sponsored by experienced and motivated JV partners with considerable sums of equity at stake. Fitch believes this provides a compelling incentive for the sponsors to invest in the centre over time and thereby maintain its appeal as a prime shopping destination. This will be key to allowing a progressive deleveraging of the transaction prior to the legal final maturity of the bonds in July 2037.

The issuer and borrower account bank, National Westminster Bank Plc (BBB+/Stable/F2), has not been replaced after its downgrade on 19 May 2015. This is despite provisions in the transaction documents requiring a guarantee or suitable replacement. Fitch has assumed a loss of one quarter's rental income commingled in the borrower's account, which can be offset by stressed recovery proceeds in the various rating scenarios. As for the issuer account, the risk of a non-recoverable commingling loss is mitigated by the payment dates of the loan and the notes being the same.

RATING SENSITIVITIES
A long-term shift away from shopping centres towards in town or online retail could have a detrimental effect on the performance of the collateral and prompt negative rating action. Upgrades are limited by the sponsor's qualified ability to issue the class M1 and C1 notes.

Fitch estimates 'Bsf' collateral value of GBP1.2bn.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

SOURCES OF INFORMATION
The information below was used in the analysis.
-Rent-roll provided by the asset manager as at end-March 2015
-Cash manager report as of the July 2015 IPD