Scope downgrades Griffon Funding Ltd after terms changed – UK CMBS

Scope Ratings has downgraded the A2, A3 and B1 tranches issued by Griffon Funding Ltd. Other tranches are affirmed. The rating actions follow the amendment of the transaction’s terms and conditions which results in increased loss volatility.

The rating actions are as follows:

A Loan Debenture A1, affirmation at AAA_SF
A Loan Debenture A2, downgrade to AA_SF from AA+_SF
A Loan Debenture A3, downgrade to A_SF from A+_SF
B Loan Note B1, downgrade to BBB_SF from BBB+_SF
B Loan Note B2, affirmation at B+_SF

Rating rationale

The rating changes reflect the higher risk to investors from the potential longer exposure to the asset portfolio. Under the new terms, the loans in the asset portfolio can be restructured and maintained in the portfolio under certain circumstances and with the agreement of the investors.

Scope’s stressed analysis of the portfolio under the revised terms reveals greater loss volatility (i.e. tail risk), which impacts principally the tranches rated investment grade. The A1 loan debenture benefits from its size and credit enhancement and is not sensitive to the increased risk from the portfolio, as reflected in the affirmation of its rating. The rating on the B2 loan note is not affected because it depends primarily on the expected loss from the portfolio and is only marginally sensitive to tail risk.

The modelling assumptions taken for this rating action are the same as those used for the initial rating action, with the exception of the weighted average life (WAL) of the portfolio. Scope has now modelled a WAL of 4.2 years (vs a WAL of 3.0 years used during the initial analysis).

The sensitivity of the ratings to changes of the modelling assumptions has not changed since the original analysis. See the rating report published on www.scoperatings.com.

Regulatory and legal disclosures

Important information
Information pursuant to Regulation (EC) No 1060/2009 on credit rating agencies, as amended by Regulations (EU) No. 513/2011 and (EU) No. 462/2013

Responsibility
The party responsible for the dissemination of the financial analysis is Scope Ratings AG, Berlin, District Court for Berlin (Charlottenburg) HRB 161306 B, Executive Board: Torsten Hinrichs (CEO), Dr Stefan Bund, Dr Sven Janssen.
The rating analysis has been prepared by Carlos Terré, Lead Analyst. Guillaume Jolivet, Committee Chair, is the analyst responsible for approving the rating.

Information on interests and conflicts of interest
The rating was prepared independently by Scope Ratings but for a fee based on a mandate of the issuer of the investment, represented by the management company.
As of the time of the analysis, neither Scope Ratings AG nor companies affiliated with it hold any interests in the rated entity or in companies directly or indirectly affiliated to it. Likewise, neither the rated entity nor companies directly or indirectly affiliated with it hold any interests in Scope Ratings AG nor any companies affiliated to it. Neither the rating agency, the rating analysts who participated in this rating, nor any other persons who participated in the provision of the rating and/or its approval hold, either directly or indirectly, any shares in the rated entity or in third parties affiliated to it. Notwithstanding this, it is permitted for the above-mentioned persons to hold interests through shares in diversified undertakings for collective investment, including managed funds such as pension funds or life insurance companies, pursuant to EU Rating Regulation (EC) No 1060/2009. Neither Scope Ratings nor companies affiliated with it are involved in the brokering or distribution of capital investment products. In principle, there is a possibility that family relationships may exist between the personnel of Scope Ratings and that of the rated entity. However, no persons for whom a conflict of interests could exist due to family relationships or other close relationships will participate in the preparation or approval of a rating.

Key sources of information for the rating
Offering circular and transaction-related contracts and amendments; management due diligence presentation provided by the originator; fundamental property and tenant information provided by the originator; historical loss ratios provided by the originator; loan-by-loan portfolio information, portfolio audit report, and legal opinions.
Scope Ratings considers the quality of the available information on the evaluated entity to be satisfactory. Scope ensured as far as possible that the sources are reliable before drawing upon them, but did not verify each item of information specified in the sources independently.

Examination of the rating by the rated entity prior to publication
Prior to publication, the rated entity was given the opportunity to examine the rating and the rating drivers, including the principal grounds on which the credit rating or rating outlook is based. The rated entity was subsequently provided with at least one full working day, to point out any factual errors, or to appeal the rating decision and deliver additional material information. Following that examination, the rating was not modified.

Methodology
The methodology applicable for the ratings is “General Structured Finance Rating Methodology”, dated August 2016 and the “Rating Methodology for Counterparty Risk in Structured Finance Transactions”, dated August 2016. Both files are available on www.scoperatings.com. The historical default rates of Scope Ratings can be viewed on the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s default rating, definitions of rating notations and further information on the analysis components of a rating can be found in the documents on methodologies on the rating agency’s website.

Conditions of use / exclusion of liability
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Rating issued by
Scope Ratings AG, Lennéstraße 5, 10785 Berlin.