New Issue Report - Fitch Ratings - Deutsche Pfandbriefbank AG

Structured Finance 

CMBS/Europe 

New Issue 

ESTATE PanEurope 5 

Ratings 

EUR1,360,600,000 CreditLinked Notes 

Class 

Amount 

(m) 

Final 

Maturity Rating CE (%) 

A1a* 800.00 July 2018 NR 21.0 

A1b* 752.40 July 2018 NR 21.0 

A1+ 0.50 July 2018 AAA 21.0 

A2 70.15 July 2018 AAA 15.8 

B 74.50 July 2018 AA 10.4 

C 74.00 July 2018 A 4.9 

D 42.60 July 2018 BBB 1.8 

E 14.50 July 2018 NR 0.7 

F 10.00 July 2018 NR 0.0 

* USDdenominated; USD:EUR = 1.4450:1 

Euroequivalent: EUR553.6 Class A1a notes, 

EUR520.7m Class A1b notes 

Each rated class in this transaction has a Stable Outlook 

Analysts 

Santino Marinelli 

+44 20 7682 7361 

santino.marinelli@fitchratings.com 

Julian Jonsson 

+44 20 7682 7203 

julian.jonsson@fitchratings.com 

Gioia Dominedò 

+44 20 7417 4376 

gioia.dominedo@fitchratings.com 

Origination and Servicing 

Edward Register 

+44 20 7862 4132 

edward.register@fitchratings.com 

Performance Analytics 

Mario Schmidt 

+44 20 7417 4232 

mario.schmidt@fitchratings.com 

Closing Update 

Closing occurred on 27 December 2007. 

• Summary 

This transaction is a fullyfunded synthetic securitisation of 25 

commercial mortgage loans originated including by acquisition 

from a third party by Hypo Real Estate Bank AG (HRE, rated 

‘A/F1’) and Hypo Real Estate Bank International AG (HI, rated 

‘A/F1+’, and together, the originators). 

Fitch Ratings has assigned final ratings to the creditlinked notes 

(CLNs) issued by HRE (the issuer) as indicated at left. The final 

ratings address the timely payment of interest and ultimate 

repayment of principal by legal final maturity in July 2018 and are 

based on the credit quality of the reference loans, the rating of the 

issuer, the ‘AAA’ rating of the public credit covered securities 

held by the trustee as collateral for the notes, and the transaction’s 

financial and legal structure. 

At closing, the reference loans will remain on the originators’ 

respective balance sheets and the notes will assume the credit risk 

of the reference loans. On each payment date, the interest earned 

on the collateral will be applied to maintain debt service on the 

notes. The notes will amortise on a full sequential basis in line 

with the reference loans. However, the issuer has the option to 

replenish the reference portfolio, subject to certain conditions, 

following early prepayments of reference loans; consequently, 

prepayments will not necessarily lead to the amortisation of the 

notes. If losses should be suffered on any of the reference loans, 

this will be allocated on a reverse sequential basis to the notes. 

The reference portfolio consists of 25 loans secured by a diverse 

property portfolio located throughout France, Germany and the 

Netherlands. The reference loans have an aggregate cutoff 

balance of EUR1,361m and the property collateral has an 

aggregate market value (MV) of EUR2,255m, giving an initial 

weightedaverage loan to value (WA LTV, weighted by reference 

claim balance) ratio of 62.2%. 

• Credit Committee Highlights 

· The reference portfolio displays significant granularity when 

compared to recent European CMBS transactions: of the 25 

loans, 17 account for less than 5% each of the portfolio 

balance. Of the remaining loans, only two account for more 

than 10% of the pool balance each. 

· The property collateral has a strong exposure to the greater 

Paris office market (47% of the reference portfolio; 52% of 

MV). Despite this concentration in the Greater Paris area (Ile 

de France), the strength of the market and the individual assets 

and the geographical spread of the assets across Paris 

mitigates the potential impact on the transaction’s 

performance of a downturn in this market. 

· The reference loans were originated between July 2002 and 

July 2007 and have a WA seasoning of 20 months. 

Consequently, the reference loans especially those with 

greater seasoning are secured by properties that are valued 

11 January 2008 

www.fitchratings.com


more conservatively and exhibit higher initial 

yields than those securing recent European 

CMBS transactions. However, this has the 

potential to change over the term if more 

recently originated loans are included in the 

pool through replenishment. 

· The reference loans benefit from high coverage 

ratios, with a WA interest coverage ratio (WA 

ICR) of 1.89x and a WA debt service coverage 

ratio (WA DSCR) of 1.83x. 

· The reference loans exhibit a wide range of 

maturity dates, between July 2010 and June 

2014. Consequently, the transaction will not be 

overly exposed to property and capital market 

conditions in any particular time over its term. 

• Structure 

The transaction uses a synthetic structure, meaning 

that losses allocated to the notes are linked to the 

performance of the reference loans originated by and 

held on the balance sheets of the originators. Losses 

incurred on the reference loans will be synthetically 

transferred to the noteholders in reverse sequential 

order. Public credit covered securities will be held by 

the trustee as collateral for the notes. 

At closing, the issuer will issue nine classes of notes 

governed by German law; it will use the net proceeds 

from the notes for general banking purposes. Initial 

credit enhancement, provided by subordination, will 

total 21.0% for the class A1a, class A1b and class 

A1+ notes, 15.8% for the A2 notes, 10.4% for the 

class B notes, 4.9% for the class C notes, 1.8% for 

the class D notes and 0.7% for the class E notes. The 

class F notes, being the most junior, will not benefit 

from any pooled credit enhancement. 

Over the term of the transaction, the issuer will have 

the option to enter into a credit default swap (CDS) 

with a senior swap counterparty; in conjunction, it 

will redeem the class A1a and class A1b notes. 

Trust Agreement 

The issuer has entered into a trust agreement with the 

trustee, for the benefit of the noteholders and the 

ESTATE PanEurope 5: January 2008 

2


Key Information 

Reference Portfolio 

Description: 25 real estatebacked loans originated 

to finance the acquisition or refinancing of 140 

properties, all located in Germany, France, and the 

Netherlands 

Loan Originator: Hypo Real Estate Bank AG (rated 

‘A/F1’) and Hypo Real Estate Bank International 

AG (rated ‘A/F1+’) (including origination by 

acquisition from a third party) 

Loan CutOff Date: 31 August 2007 

Reference Portfolio Balance: EUR1,361m 

Largest Reference Loans: 1002 (14.0%), 

1010/1011 (11.5%), 1007 (8.9%) 

WA LTV: 62.2% 

WA Exit LTV: 61.3% 

WA ICR: 1.89x 

WA DSCR: 1.83x 

WA Loan Term Remaining: 5.1 years 

WA Seasoning: 20.0 months 

Latest Scheduled Loan Maturity: June 2014 

Loan Payment Frequency: Quarterly 

Property Collateral 

Collateral: office (64% of market value), retail 

(23%), and multifamily (13%) properties 

Market Value: EUR 2,255m 

Passing Rent: EUR140.7m 

Estimated Rental Value: EUR141.1m 

Note Characteristics 

Closing Date: 27 December 2007 

First Payment Date: 25 April 2008 

Payment Dates: 25 January, April, July and October 

Final Scheduled Payment Date: 25 July 2014 

Legal Maturity Date: 25 July 2018 

Structure 

Issuer: Hypo Real Estate Bank AG 

Arranger: Hypo Real Estate Bank International AG 

Servicers: Hypo Real Estate Bank AG and Hypo 

Bank International AG 

Trustee: Deloitte & Touche GmbH 

Wirtschaftsprüfungsgesellschaft 

Principal Paying Agent: Hypo Real Estate Bank 

AG 

Common Depositary: Deutsche Bank AG (rated 

‘AA/F1+’) 

Luxembourg Listing Agent and Luxembourg 

Listing Intermediary: Deutsche Bank S.A. 

Custodian: Deutsche Bank Luxembourg 

senior swap counterparty, if any. The main functions 

of the trustee are as follows: 

· verifying the determination and allocation of 

realised losses; 

· checking the inclusion and removal of any 

reference loans; 

· checking determinations and allocations made in 

connection with an issuer call and credit events; 

and 

· appointing thirdparty experts, when necessary. 

The issuer will be obliged to maintain a trustee for as 

long as the notes are outstanding. Any resignation of 

the trustee, or termination of the trustee’s 

appointment, will only be valid if a substitute trustee 

is appointed. 

Collateral 

The payment obligations of the issuer will be 

secured by eight classes of ‘AAA’ rated public credit 

covered securities of Depfa ACS Bank (rated ‘AA 

/F1+’). Of these classes, seven will be eurodenominated 

and one will be dollardenominated, in 

line with the notes. In addition, each collateral class 

will match its respective note class in terms of both 

notional amount, base rate and margin payable. The 

collateral will be released as the notes amortise. 

The collateral will become enforceable following: 

(a) the initiation of insolvency or other similar 

proceedings against the issuer; (b) following a nonpayment 

of interest of principal under the notes; 

and/or (c) a resignation of the trustee and failure to 

appoint a replacement within 30 days. Enforcement 

will occur either via a sale of the collateral or, if this 

is not possible, via delivery of the collateral to the 

noteholders. 

At closing, the issuer will transfer ownership of the 

collateral to the trustee, which will in turn deliver the 

collateral to its security trust account with the 

custodian. In the event that any class of collateral is 

downgraded below ‘AAA’, the issuer must either 

supplement or substitute the collateral. Further, in 

the event that the ShortTerm Rating of the custodian 

is downgraded below ‘F1’, the collateral will be 

transferred to an account with another custodian with 

the requisite rating. 

Credit Default Swap 

After closing, the issuer may enter into a CDS with a 

senior swap counterparty, in order to obtain credit 

protection in respect of the reference loans: 

cumulative losses exceeding the sum of the class A2 

to F notes will be borne by the class A+ notes and 


3


the super senior swap counterparty on a pari passu 

basis, according to a fixed ratio. Consequently, the 

senior swap counterparty will rank pari passu with 

the class A1+ notes and senior to all other classes of 

notes. 

In conjunction with this option, the issuer will also 

have the right to redeem the class A1a and class A1b 

notes in whole. Following such a redemption, the 

transaction would change from a fullyfunded to a 

partiallyfunded transaction. 

SubPool Credit Default Swap 

At closing, HI will enter into a CDS with the issuer 

in order to obtain credit protection with respect to the 

loans in the reference portfolio that it has originated. 

Under the CDS, if a loss is determined on one of 

these loans, HI will be entitled to receive a credit 

protection payment from the issuer. This payment 

will match the loss allocated to the notes. 

Principal Redemption 

Amortisation of the Notes 

The reduction of the senior swap notional if any 

and the amortisation of the notes are linked to the 

amortisation of the notional amount of the reference 

portfolio. Principal receipts first reduce, pro rata, the 

outstanding notional amount of either the class A1a 

and class A1b notes (multiplied by a fixed 

EUR:USD conversion rate) or the senior swap, if any, 

and the class A1+ notes, and then sequentially the 

class A2, B, C, D, E and F notes in an amount equal 

to the amortisation of the underlying reference 

portfolio. 

The notes are scheduled to be repaid in July 2014. 

Principal corresponding to overdue reference claims 

will remain outstanding until final maturity is 

reached in July 2018, at which date losses will be 

appraised on those defaulted loans for which a 

realised loss will not have been already determined. 

Early Redemption 

The issuer may redeem the notes in the following 

circumstances: 

· adverse regulatory changes; 

· on or after the payment date falling in December 

2012 (time call); or 

· the outstanding nominal amounts of the 

reference claims have reduced to 10% or below 

of the initial balance. 

In case of an early redemption, the principal on those 

notes corresponding to principal on overdue 

reference claims is not redeemed on the early 

termination date but remains outstanding until a 

realised loss has been determined. 

Allocation of Realised Losses 

Defaulted Loan and Credit Event 

A defaulted loan is one in respect of which a credit 

event has occurred and for which the issuer has sent 

a credit event notice to the trustee. A credit event is 

defined as: 

· bankruptcy of the relevant borrower; 

· failure to pay, which means that a due payment 

in an aggregate amount of not less than (i) 

EUR30,000 or, (ii) if lower, not less than 50% 

of the outstanding notional amount of such 

reference claim, has not been made within 90 

days of the due date; and/or 

· restructuring of the reference loan that results in 

a debit to the issuer’s profit and loss account (eg 

value adjustment). 

Following a payment default, the servicer may agree 

a loan restructuring with the borrower; this could 

include the rescheduling of payment obligations or 

the forgoing of a portion of the outstanding principal 

balance. Any such restructuring will be subject to 

the servicing standards and may only be agreed if the 

servicer determines that the total recoveries 

following the restructuring will exceed potential 

recoveries without a restructuring. 

Realised Loss 

With respect to a defaulted reference claim for which 

the issuer confirms that all expected recoveries have 

been received, a realised loss is defined as the sum 

of: 

· the outstanding nominal amount; 

· accrued interest on the outstanding amount of 

the loan, calculated at the loan’s rate for all 

missed instalments until HRE declares a realised 

loss; 

· external enforcement costs; and 

· any foregone principal in case of rescheduling 

or restructuring of the loan. 

The proceeds from the foreclosure of any mortgage 

property securing the loans are allocated first to 

cover enforcement costs and accrued interest, second 

to repay the principal balance of the defaulted loan, 

and finally to repay any other interests secured by 

the mortgage. The enforcement proceeds of any 

additional collateral will be allocated first to 

satisfying any other claims of the originators and 

second to reducing realised losses on the reference 

loan, if any. 


4


Realised Loss Allocation 

In the event that losses occur, they will be allocated 

in reverse sequential order to the class A2 to F notes. 

Cumulative losses exceeding the sum of the class A2 

to F notes are borne by the class A1+ notes and the 

class A1a and class A1b notes (multiplied by a fixed 

EUR:USD conversion rate) or the super senior swap 

counterparty, if any, on a pari passu basis according 

to a fixed ratio. 

• Reference Portfolio 

Reference Loan Summary 

WA cutoff LTV (%) 62.2 

WA exit LTV (%) 61.3 

WA cutoff ICR (x) 1.89 

WA cutoff DSCR (x) 1.83 

Average loan size (EURm) 54.4 

Largest loan size (EURm) 190.6 

Smallest loan size (EURm) 15.4 

WA loan term (years) 5.07 

WA loan seasoning (months) 20.03 

Source: Transaction documents 

Pool Composition 

The reference portfolio includes 25 loans originated 

by HRE and HI between July 2002 and July 2007 

(including by way of acquisition from a third party). 

The pool displays significant loan granularity when 

compared to recent European CMBS transactions: of 

the 25 loans, 17 account for less than 5% of the 

portfolio balance. Of the remaining loans, only two 

account for more than 10% of the pool balance. 

Overall, the loans in the reference portfolio benefit 

from high coverage and low LTV ratios. However, 

the loans vary greatly amongst themselves and are 

DSCR Distribution 

By reference claim balance 

(%) 

30 

25 

20 

15 

10 

5 

0 

< 1.02 

1.02 1.22 

1.22 1.42 

1.42 1.62 

1.62 1.82 

1.82 2.02 


therefore best represented graphically by the 

distributions shown on the following pages. 

Eligibility Criteria 

At closing, and at the date of any subsequent 

replenishment, the reference portfolio will have to 

comply with the eligibility criteria. These stipulate 

that, amongst others: 

· each reference loan has been originated by HRE 

or HI in its ordinary course of business 

(including through acquisition from a third 

party); 

· each reference loan is eurodenominated; 

· each reference loan is subject to the laws of 

England, France, Germany or the Netherlands 

and is legally valid, binding and enforceable; 

· no reference loan matures later than June 2014; 

· no reference loan has an LTV greater than 90%; 

2.02 2.21 

2.21 2.41 

2.41 2.61 

2.61 2.81 

2.81 3.01 

3.01 3.21 

> 3.21 

Collateral Summary 

Location 

Number of 

properties 

Total 

lettable area 

(sq. m) 

Total 

lettable area 

(%) 

Total gross 

passing rent 

Total 

passing 

rent (%) 

Total market 

value 

Total 

market 

value (%) 

France Paris (CBD) 2 37,740 4.7 21,190,458 15.1 398,400,000 17.7 

France Greater Paris 4 111,886 14.1 30,328,075 21.6 521,200,000 23.1 

France Paris (La Défense) 2 30,230 3.8 13,111,411 9.3 252,900,000 11.2 

France Regional 1 12,816 1.6 4,352,865 3.1 97,000,000 4.3 

Germany Berlin 5 59,738 7.5 9,013,016 6.4 128,670,000 5.7 

Germany Cologne 1 1,192 0.1 172,742 0.1 2,820,000 0.1 

Germany East Metropolitan 2 6,505 0.8 497,716 0.4 8,040,000 0.4 

Germany East Regional 6 6,656 0.8 774,048 0.6 11,690,000 0.5 

Germany Frankfurt 3 9,801 1.2 987,733 0.7 9,630,000 0.4 

Germany Hamburg 2 16,460 2.1 2,679,423 1.9 39,950,000 1.8 

Germany Munich 3 30,484 3.8 3,145,249 2.2 55,366,000 2.5 

Germany West Metropolitan 8 70,391 8.8 9,640,668 6.9 166,320,097 7.4 

Germany West Regional 96 368,280 46.3 37,836,312 26.9 455,998,889 20.2 

Netherlands Amsterdam 1 470 0.1 320,346 0.2 4,920,000 0.2 

Netherlands Metropolitan 2 30,438 3.8 5,965,359 4.2 92,040,000 4.1 

Netherlands Regional 2 2,488 0.3 638,055 0.5 9,770,000 0.4 

Total 140 795,576 100.0 140,653,475 100.0 2,254,714,986 100.0 



5


ICR Distribution 


(%) 

40 

trustee to add new reference loans in order to 

maintain the expected paydown profile of the notes. 

Any such replenishment may only occur before 

December 2012 and will be subject to replenishment 

conditions; the main criteria are listed below. 

30 

20 

10 

0 

< 1.25 

1.25 1.44 

1.44 1.62 

1.62 1.81 

1.81 1.99 

1.99 2.18 


2.18 2.36 

2.36 2.55 

2.55 2.73 

2.73 2.92 

2.92 3.10 

3.10 3.29 

> 3.29 

· the new reference loan meets the eligibility 

criteria (excluding limitations on loan 

jurisdiction, property location, maximum claim 

amounts, minimum seasoning and maximum 

maturity date); 

· the new reference loan is eurodenominated and 

subject to the laws of, and secured by properties 

located in, a member state of the EU in the euro 

zone; 

· no borrower has outstanding reference loans 

greater than EUR190.6m; 

· no borrowers are in bankruptcy, administration 

or insolvency, have stopped their payments, or 

are subject to litigation; 

· each reference loan is secured by a seniorranking 

mortgage over one or more properties 

located in France, Germany or the Netherlands, 

over which the mortgagor has a good title; and 

· each mortgaged property is covered by building 

insurance and is not, to the best knowledge of 

HRE or HI, subject to any engineering or 

environmental risks. 

Noncompliance with any of the above or other 

eligibility criteria will result in the affected loan 

failing to qualify for the allocation of realised losses. 

Replenishment Criteria 

Following prepayments of reference loans, the issuer 

will have the option without the consent of the 

· the new reference loan is not secured by 

specialty assets (such a leisure or healthcare 

assets), and is not a development loan; 

· no reference loan will constitute more than 15% 

of the reference portfolio and the average 

reference loan balance will not be greater than 

EUR60m; 

· the ICR of the new reference loan is greater than 

1.30x and the WA ICR of the reference portfolio, 

following the inclusion of the new reference 

loan, is greater than 1.90x; 

· the WA LTV of the reference portfolio, 

following the inclusion of the new reference 

loan, is lower than 62%; 

· no realised losses in excess of EUR4.0m have 

been allocated; and 

· rating agency confirmation that the inclusion of 

the reference loan will not adversely affect the 

rating of any class of notes. 

Reference Claim Balance Distribution 


(%) 

25 

20 

LTV Distribution 


(%) 

50 

40 

15 

30 

10 

20 

5 

10 

0 

< 15.4 

15.4 31.3 

31.3 47.3 

47.3 63.2 

63.2 79.1 

79.1 95.0 

95.0 111.0 

111.0 126.9 

126.9 142.8 

142.8 158.7 

158.7 174.7 

174.7 190.6 

> 190.6 

0 

< 43.1% 

43.1% 47.2% 

47.2% 51.3% 

51.3% 55.3% 

55.3% 59.4% 

59.4% 63.5% 

63.5% 67.6% 

67.6% 71.7% 

71.7% 75.8% 

75.8% 79.9% 

79.9% 84.0% 

84.0% 88.1% 

> 88.1% 




6


Fitch has assessed the potential migration in credit 

quality of the reference portfolio that is permitted by 

the above criteria. The ratings are commensurate 

with this eventuality. 

Senior Participations 

Ten of the reference loans represent senior 

participations of whole loans. Interest and principal 

receipts on these loans will be allocated on a 

sequential basis; that is, they will first be allocated to 

the portion covered by the reference loan. 

Conversely, any losses will be allocated first to the 

portion not covered by the reference loan. The 

relevant loans are listed in the table below. 

A note/B note Split 

Loan ID ALoan BLoan Whole loan 

1009 15,427,945 2,700,000 18,127,945 

1012 33,650,000 4,300,000 37,950,000 

1016 44,600,000 11,400,000 56,000,000 

1017 28,768,750 1,650,000 30,418,750 

1018 20,755,699 7,000,000 27,755,699 

1019 32,050,364 4,900,000 36,950,363 

1022 24,032,223 3,300,000 27,332,223 

1023 55,950,000 8,400,000 64,350,000 

1024 43,500,000 6,900,000 50,400,000 

1025 25,801,000 3,700,000 29,501,000 


German Tax Reform 

The German Business Tax Reform was approved by 

the German legislator in July 2007 and will take 

effect from January 2008. This reform could have a 

significant impact on German and foreign corporate 

entities which financed their German property 

holdings with debt. While the corporate tax rate will 

be lowered, the tax base will be enlarged by means 

of limiting the deductibility of interest (interest 

deduction barrier) which effectively can increase the 

tax burden of borrowing entities. However, a 

borrower is not subject to the interest deduction 

barrier if its net interest expense in the relevant fiscal 

year is less than EUR1m or the specifics of the 

borrower’s structure ensure its nonapplicability 

(exemption clauses). In case the deductibility of 

interest payments made by the borrowers is reduced, 

this might impact the net cash flow available to 

service the loans. 

13 of the 25 loans may be affected by the tax reform, 

either because they are secured on German 

properties or because they are granted to German 

borrowers. Fitch has not received any information 

that confirms the expected impact on these loans as 

this assessment has not yet been completed by the 

originators; consequently, it has not been possible to 

incorporate this risk into its rating analysis. However, 

the high coverage on the loans that may be affected 

(1.92x WA ICR and 1.83x WA DSCR) mitigates the 

potential adverse effect of increased tax expenses on 

their performance. 

• Property Collateral 

Overview 

The properties securing the reference loans are 

located in France (56% of total market value), 

Germany (39%) and the Netherlands (5%). Of the 

140 properties, there is a strong focus on office 

properties (64% of the total market value); the 

balance is accounted for by retail and multifamily 

properties (23% and 13%, respectively). 

Collateral Summary 

Number of properties 140 

Total lettable area (sq. m) 795,576 

Total passing rent 140,653,475 

Total ERV 141,097,816 

Total market value 2,254,714,986 


Fitch has inspected a large number of the properties 

securing the outstanding balance of the reference 

portfolio. It has also reviewed the valuations for the 

properties to assess initial and equivalent yields. This 

enabled it to gain a good understanding of the 

markets for each of the properties and to assess each 

loan individually. 

Property Market Exposure 

Office Properties 

Some 52% of the collateral pool by MV are offices 

located in and around Paris, the remaining 12.5% are 

located in mainly western German and Dutch cities. 

Three of the seven Paris properties are single 

tenanted this risk is mitigated by the strength of 

two of the tenants as well as their geographical 

diversity. Within Paris, two assets are located in the 

city centre, two in La Défense Business District, one 

Property Type Concentration 

By market value 

Retail 

23% 

Multifamily 

13% 


Office 

64% 


7


Geographic Concentration 


Germany 

39% 

Netherlands 

5% 

France 

56% 

• Loan Summaries 

The reference loans vary widely in nature; further, 

the reference portfolio benefits from high granularity. 

A description of the five largest reference loans is 

provided below. Due to disclosure restrictions, it is 

not possible to provide additional detail on specific 

assets and tenants. A table summarising the main 

characteristics of all the reference loans is included 

in the appendix. 

Reference Loan 1002 

(14.0% of the Reference Portfolio) 


each in the Clichy, Nanterre and Colombes districts 

and another 18km south of the city centre. 

The overall office market in Paris has remained 

active despite the turbulence in the financial markets 

since the summer of 2007. The vacancy rate has 

remained constant, around 5%. Demand in Paris is 

expected to persist despite growing supply. 

Retail Properties 

Some 17 % of the collateral pool by MV consists of 

retail and shopping centre properties located in 

Germany; the remaining 5.5% is located in regional 

France and the Netherlands. The main retail assets 

consist of multitenanted portfolios that benefit from 

diverse occupiers offer. The shopping centre 

property benefits from diversified income sources, so 

the default of a single, or even several, tenants would 

most probably not be sufficient to cause the 

borrower to fail to meet its debt payment 

requirements through the term of the loan. 

Multifamily Properties 

Some 13 % of the collateral pool by MV consists of 

multifamily portfolios in Germany. Multifamily 

portfolios benefit from stable cash flows due to 

tenant granularity; however, the recent influx of 

international capital into the sector has resulted in 

significant yield compression in the valuation of 

multifamily assets, often supported by equity 

business plans. By contrast, the assets in the 

reference portfolio display stabilised cash flows and 

were valued in 2005 and 2006; consequently, their 

valuations do not reflect the significant yield 

compression that has since occurred. Overall, the 

assets are characteristic of portfolios that have been 

seen in other transactions, representing a stable 

source of income by offering accommodation of a 

good quality at affordable prices in both 

metropolitan and regional locations. 

1002: Key Characteristics 

Currency 

EUR 

A note balance 190,600,000 

B note balance 0 

A note participation (%) 100.0 

Cutoff A note LTV (%) 62.5 

Exit A note LTV (%) 62.5 

Cutoff A note ICR (x) 1.64 

Cutoff A note DSCR (x) 1.64 

Interest rate type 

Floating 

Loan maturity 28 June 2013 


Property type (%) Office (100.0) 

Location (%) France Greater Paris (100.0) 

Market value 305,000,000 

Passing rent 16,293,987 

ERV 17,876,567 

Number of leases 34 

WA length to break 3.12 


This sevenyear loan was originated in June 2006 to 

fund the acquisition of an office complex located in 

greater Paris. The borrower is a French SPV. The 

loan benefits from an ICR covenant of 1.30x. 

At origination, a further EUR8.4m was made 

available to finance capital works on the property. 

This line will be available to the borrower until June 

2010; if drawn, it will mature in June 2013. To date, 

it has not been drawn; any future drawings would be 

subordinated to the reference loan. 

The reference loan is secured by an office complex 

located in a business park in Nanterre, 8km west of 

central Paris. The asset was completed in 1990 and 

consists of six connecting sixstorey buildings used 

primarily for office purposes. The overall complex 

benefits from good rail and road connections, as well 

as good quality services, including a staff restaurant 

and sports facilities. 

The property is let to 31 tenants, with a weighted 

average lease length to break and expiry of 3.1 years 

and 6.5 years, respectively. The two largest tenants 

contribute 11.7% and 9.5% of passing rent, 

respectively. The complex has a vacancy rate of 9 % 


8


(by ERV) and the occupied space is approximately 

rackrented. 

Reference Loans 1010/1011 


1010/1011: Key Characteristics 

Currency 

EUR 







Cutoff A note DSCR 

2.07 

(x) 


Fixed 

Loan maturity 30 July 2012 



Location (%) France Paris (La Défense) (100.0) 



ERV 12,700,000 




These two crosscollateralised and crossdefaulted 

loans were originated in July 2007 to refinance 

existing debt on two office properties located in La 

Défense in Paris. The borrowers are French SPVs, 

ultimately held by high net worth individuals. In 

addition to the reference loans, three subordinated 

additional loans were granted to the same borrowers, 

bringing the total leverage to 81.3% LTV. The 

combined loans are amortising through a cash sweep 

mechanism: all excess cash will be applied to pay 

down debt during the first three years of the term, 

following which the cash swept may decrease to 

50% of excess cash if the overall LTV of the 

combined loans, including both the reference and 

subordinated loans, is lower than 76.8%. Of the cash 

swept, 85% is allocated to reference loan 1011 and 

the remaining 15% to reference loan 1010, due to the 

higher allocated LTV of the former. 

The two office properties are both located in La 

Défense; one was recently refurbished and benefits 

from a higher quality specification. Both assets are 

wholly occupied by the same tenant, a whollyowned 

subsidiary of a ‘AA’ rated corporate. 




Currency 

EUR 









Fixed 

Loan maturity 02 July 2012 



Location (%) France Paris (CBD) (100.0) 



ERV 16,820,077 




This loan was originated in July 2002 to fund the 

acquisition of an office property located in central 

Paris. It was originated by a third party and was 

subsequently acquired by HI. The borrower is a 

German openended fund, which has the ability to 

acquire further assets and incur additional 

indebtedness. The loan structure includes three pari 

passu tranches that only differ with respect to their 

base rates. There are no technical covenants; 

however, this is partially mitigated by the loan’s low 

leverage. 

The loan is secured on an eightstorey office block 

located in the ninth district (arrondissment) of Paris, 

a central location benefiting from good public 

transport connections to both metro and bus lines. 

The property consists of four independent eightstorey 

office buildings that were recently refurbished 

to a grade A specification and converted from singletenant 

to multitenant use. As these improvements 

were only recently completed, the property is 

approximately 27% vacant and is currently in the 

process of being relet. To date, 12 leases have been 

signed with 11 tenants, of which the largest is stateowned. 

Given the desirable location and quality of 

the office space, it is likely that the current vacancy 

rate will decrease further over the term of the 

transaction. Consequently, some credit was given to 

this vacant space in Fitch’s analysis. 


9





Currency 

EUR 









Floating 

Loan maturity 10 October 2013 


Property type (%) Multifamily (100.0) 

Location (%) Germany West Regional (66.7) 



ERV 10,629,937 

Number of leases 

n.a. 

WA length to break 

n.a. 


This loan was originated in June 2006 to refinance a 

portfolio of multifamily assets. The borrowers are 

four Swedish SPVs, ultimately held by a Nordic 

advisory and banking platform. The loan benefits 

from an ICR covenant of 1.25x. 

The portfolio consists of good quality assets 

constructed between 1935 and 1981, scattered across 

the main German cities/towns. The highest 

concentrations by market value are in Munich (15% 

of market value), Frankfurt (9%) and Dusseldorf 

(9%). The majority of the portfolio’s surface area 

consists of residential units with an average size of 

58 sq. m and an average rent of EUR5.71/sq. 

m/month. Approximately 9% of the residential 

surface area is currently vacant. 




Currency 

EUR 









Floating 

Loan maturity 10 May 2013 



Location (%) France Greater Paris (100.0) 



ERV 6,804,518 




This loan was originated in June 2006 to finance the 

acquisition of an office property located in greater 

Paris. The borrower is a French SPV, ultimately held 

under the SIIC tax regime. The loan structure 

includes ICR and DSCR covenants of 1.35x and 

1.15x respectively. The loan also benefits from a 

EUR3m escrow account available to cover interest 

shortfalls, if any. 

The property complex consists of four connecting 

buildings completed in January 2002 and primarily 

used for office purposes. The buildings range 

between six and eight stories and are located in 

Clichy la Garenne in north west Paris. 

The complex is 90.6% let to seven tenants. Its 

weighted average remaining length to break of 1.8 

years leaves it heavily exposed to rollover risk, 

largely due to the French 3/6/9 year lease structure. 

This risk is accentuated by the significant exposure 

to the two largest tenants: a transport and logistics 

company and a rental and fleet management 

company. These two tenants account for 39.4% and 

33.0% of the net passing rent, respectively. 

• Origination and Servicing 

Following a review by Fitch of HRE and HI’s 

origination, underwriting and servicing processes, 

Fitch considers each to be effective originators and 

servicers of commercial mortgage loans. Fitch found 

their controls over origination, underwriting and 

servicing to be satisfactory. 

Origination 

Hypo Real Estate Bank International AG and Hypo 

Real Estate Bank AG combine international real 

estate financing in 18 sales locations around the 

world. 

The origination and underwriting process at HRE 

and HI is handled by separate groups to insure 

adherence to company mandated risk controls. The 

origination group is not involved in structuring or 

addressing legal issues. Fitch views favourably the 

separation of duties associated with origination and 

underwriting, as it separates ‘relationship’ banking 

from the credit analysis of new loans. 

All loans are subject to a dual approval process 

beginning with completion of the standardised ‘Deal 

Brief’ process, which involves input from legal, risk 

management and senior management. This preunderwriting 

committee determines the structure of 

the proposed loan and identifies critical issues and 

risk mitigants. Following approval of the deal brief, 

a ‘Deal Team’ is established, which includes 

transaction management, property analysis and 

underwriting. The Deal Team prepares the 


10


committee presentation that details the transaction 

and a summary of due diligence conducted before 

loan drawdown. Typically this will include: 

· environmental and structural surveys; 

· insurance details; 

· thirdparty reports on title, etc; 

· property income and expense certification; 

· loan structure; 

· risks and mitigants analysis; 

· review of borrower. 

Any credit decision requires two consenting votes by 

each of the A and B Authorities. The A Authority is 

a Business Line vote for support of the transaction, 

while the B Authority second vote is a standalone, 

independent vote. Once a loan has been approved by 

the credit committee and the borrower has accepted 

the letter of an offer, a separate transaction 

management team will process the loan to closing. 

Servicing 

The credit risk management processes of servicing 

and monitoring, intensified management and 

problem loans is the responsibility of the Loan 

Services department, with respect to loans originated 

by both HRE and HI. Loan Services acts as both 

servicer and special servicer for securitised deals. As 

servicer, Loan Services will be responsible for 

undertaking the primary servicing, including the daytoday 

administration of the loans and monitoring 

compliance of the loans with the relevant credit 

agreement. While HI or HRE is not rated as a 

primary or special servicer by Fitch, the rating 

agency did undertake a review of the servicing 

operations in conjunction with this deal. For more 

information on Fitch’s servicer rating programme, 

please see the report “Rating Criteria for European 

Residential and Commercial Mortgage Loan 

Servicers,” dated 20 August 2007 available on the 

agency’s website. 

Once a loan is in arrears for more than 30 days, or 

following a loan covenant breach triggering a special 

servicing transfer event, the intensive support 

process is applied. In such situations a review is 

conducted to determine the best workout strategy, 

ranging from restructuring to foreclosure, and what 

options are available under the terms of the 

securitisation. In case of restructuring, an 

improvement of the situation is targeted for the next 

six to 12 months. Should this not be successful, the 

loan would then be transferred to the Intensive Care 

department. In case of foreclosure, the responsibility 

is transferred to the Intensive Care group directly. 

There is a maximum three year retention period for 

loans in the Intensive Care department. 

• Credit Analysis 

Fitch analysed the loans included in the transaction 

with its CMBS asset model. The model is a Monte 

Carlo simulation of property cash flows, generated 

by aggregating the flows projected for each unit. 

Tenant defaults simulated through Fitch's 

VECTOR model depend on credit ratings and 

industry correlation assumptions, and lease renewal 

probabilities depend on the lease standards for each 

market. Tens of thousands of iterations are carried 


11


out to produce a range of possible scenarios at unit, 

and consequently at property, level. The projected 

property income provides the basis for the valuation 

of the property. The results are then aggregated to 

plot the loss distribution for each loan in the pool. 

Percentiles commensurate with the different stress 

levels are used to determine the gross credit 

enhancement for each loan and for the overall pool. 

For further information on the agency’s asset 

modelling methodology, please see the report titled 

“Criteria for European CMBS Asset Analysis”, dated 

12 September 2007 available on the agency’s 

website at www.fitchratings.com. 

• Performance Analytics 

Fitch will monitor the transaction regularly and as 

warranted by events. Its structured finance 

performance analytics team ensures that the assigned 

ratings remain, in the agency’s view, an appropriate 

reflection of the issued notes’ credit risk. 

In particular, the agency will monitor the 

composition of the reference portfolio following 

replenishments. At closing, the reference loans 

benefit from high coverage and low LTV ratios, as 

well as relatively conservative valuation yields. In 

addition, the overall portfolio benefits from a high 

level of property diversity and loan granularity. 

Adverse movements in these characteristics could 

lead to rating action over the term of the transaction. 

In addition, Fitch will monitor the occupational and 

investment trends in the Paris office market. Given 

the transaction’s high exposure to this market, a 

decline of this market could lead to increased term 

and/or refinancing risk of the affected reference 

loans. 

Details of the transaction’s performance are 

available to subscribers at www.fitchresearch.com . 

Further information on this service is available at 

www.fitchratings.com. 

Please call the Fitch analysts listed on the first page 

of this report with any queries regarding the initial 

analysis or the ongoing performance. 


12


• ESTATE PanEurope 5 

CMBS/Europe 

Capital Structure 

Class 

Final 

ratings 

Amount 

(m) CE (%) 

Adv. 

rate (%) Interest rate (%) 

PMT 

freq 

ISIN/ 

CUSIP 

First IPD 

Expected 

maturity 

Legal 

maturity 

A1a* NR 800.00 21.0 47.6 n.a. Q n.a. April 2008 July 2014 July 2018 

A1b* NR 752.40 21.0 47.6 n.a. Q n.a. April 2008 July 2014 July 2018 

A1+ AAA 0.50 21.0 47.7 EURIBOR + 50 bps Q XS0337713399 April 2008 July 2014 July 2018 

A2 AAA 70.15 15.8 50.8 EURIBOR + 50 bps Q XS0337714017 April 2008 July 2014 July 2018 

B AA 74.50 10.4 54.1 EURIBOR + 75 bps Q XS0337715170 April 2008 July 2014 July 2018 

C A 74.00 4.9 57.4 EURIBOR + 110 bps Q XS0337716574 April 2008 July 2014 July 2018 

D BBB 42.60 1.8 59.3 EURIBOR + 230 bps Q XS0337718356 April 2008 July 2014 July 2018 

E NR 14.50 0.7 59.9 EURIBOR + 230 bps Q XS0337720097 April 2008 July 2014 July 2018 

F NR 10.00 0.0 60.3 EURIBOR + 410 bps Q XS0337721145 April 2008 July 2014 July 2018 

Total 1,360,60 

Closing date 27 December 2007 Country of issuer Germany 

* USD denominated; USD:EUR = 1.4450:1; Euroequivalent: EUR553.6 Class A1a notes, EUR520.7m Class A1b notes 


Collateral 

Reference portfolio characteristics 

Property pool characteristics 

Number of loans 25 Number of properties 140 

Outstanding balance (EURm) 1,361 Market value (EURm) 2,254.7 

Further advances (EURm) 0 Passing rent (EURm) 140.7 

WA cutoff LTV (%) 62.2 Estimated rental value (EURm) 141.1 

Max LTV (%) 88.1 Number of tenants 415 

WA exit LTV (%) 61.3 Three largest tenants (% of ERV) 18.3 

Largest loan size (EURm) 191 WA tenant rating CCC 

Three largest loans (% of pool) 34.4 WA lease expiry (inc. 1st break) 5.49 

WA ICR (x) 1.94 Fitch WA property quality B 

WA loan term (years) 5.07 WA EPMM score 3 

Final loan maturity date 26 June 2014 

Number of single tenant loans 6 

Location of assets (%) 

France (56.3), Germany 

(39.0), Netherlands (4.7) 


Credit Committee Highlights 

· The reference portfolio displays significant granularity when 

compared to recent European CMBS transactions: of the 25 

loans, 17 account for less than 5% each of the portfolio 

balance. Of the remaining loans, only two account for more 

than 10% of the pool balance each. 

· The property collateral has a strong exposure to the greater 

Paris office market (47% of reference portfolio; 52% of MV). 

Despite this concentration in the Greater Paris area (Ile de 

France), the strength of the market and the individual assets 

and the geographical spread of the assets across Paris 

mitigates the potential impact on the transaction’s 

performance of a downturn in this market. 

· The reference loans were originated between July 2002 and 

July 2007 and have a WA seasoning of 20 months. 

Consequently, the reference loans especially those with 

greater seasoning are secured by properties that are valued 

more conservatively and exhibit higher initial yields than those 

securing recent European CMBS transactions. However, this 

has the potential to change over the term if more recently 

originated loans are included in the pool through 

replenishment. 

· The reference loans benefit from high coverage ratios, with a 

WA interest coverage ratio (WA ICR) of 1.89x and a WA debt 

service coverage ratio (WA DSCR) of 1.83x. 

· The reference loans exhibit a wide range of maturity dates, 

between July 2010 and June 2014. Consequently, the 

transaction will not be overly exposed to property and capital 

market conditions in any particular time over its term. 

Property Type Concentration 


Retail 

23% 

Multifamily 

13% 


Office 

64% 


13


• Appendix 1 

Reference Portfolio Summary 

Id 

Description 

A note 

balance 

(EURm) 

B note 

balance A note 

(EURm) LTV (%) 

Exit A 

note 

LTV* 

(%) 

A note 

ICR (x) 

A note 

DSCR 

(x) 

Interest 

rate 

type 

Loan 

maturity 

Market 

value 

(EURm) 

Passing 

rent 

(EURm) 

ERV 

(EURm) 

Number 

of leases 

1001 Four office properties in the Clichy area of Paris. 77.8 0.0 62.7 59.2 1.65 1.38 Floating May 2013 124.0 6.8 6.8 8 1.80 

1002 One office property in the Nanterre area of Paris. 190.6 0.0 62.5 62.5 1.64 1.64 Floating Jun 2013 305.0 16.3 17.9 34 3.12 

1003 One office property in Massy, outside Paris. 21.0 0.0 45.0 44.6 3.29 3.21 Floating Nov 2012 46.8 4.1 3.4 1 1.74 

1004 One office property in Paris (CBD), let to a single tenant. 57.0 0.0 49.1 49.1 2.76 2.76 Fixed Jun 2013 116.0 8.0 6.0 1 5.34 

1005 One office property in Bois Colombes, in NW Paris. 22.0 0.0 48.5 48.5 2.54 2.54 Fixed Dec 2013 45.4 3.1 2.9 1 8.34 

1006 A singletenanted office tower in Rotterdam. 40.0 0.0 47.4 47.4 2.89 2.89 Fixed May 2011 84.3 5.5 4.9 3 3.50 

1007 A recently renovated office building located in the centre of 121.6 0.0 43.1 43.1 1.25 1.25 Fixed Jul 2012 282.4 13.2 16.8 12 2.79 

Paris. 

1009 Four retail properties throughout the Netherlands. 15.4 2.7 68.7 65.6 1.77 1.35 Floating Apr 2013 22.4 1.5 1.5 38 4.36 

1010 Two office towers in La Defense, Paris, singlelet. 156.4 0.0 61.9 61.9 2.07 2.07 Fixed Jul 2012 252.9 13.1 12.7 2 6.66 

1012 A secondary shopping centre in Oberhausen, Germany. 33.7 4.3 70.1 66.0 1.75 1.22 Floating Dec 2010 48.0 4.7 4.8 92 6.53 

1014 21 multifamily properties in NorthRhine Westphalia. 16.8 0.0 88.1 88.1 1.65 1.65 Floating Jul 2010 19.1 2.1 2.1 n.a. n.a. 

1015 39 multifamily properties in main German cities and towns. 85.0 0.0 83.7 83.7 1.98 1.98 Floating Oct 2013 101.6 10.6 10.6 n.a. n.a. 

1016 12 multifamily properties located throughout Germany. 44.6 11.4 61.9 61.9 1.76 1.76 Floating Jul 2011 72.0 4.7 4.8 8 .00 

1017 Mix use retail and office property in a business park in 

28.8 1.7 77.5 73.2 1.74 1.27 Floating Apr 2011 37.1 2.8 2.8 18 9.14 

Berlin. 

1018 Single tenant office property in Hamburg, Germany, over 20.8 7.0 66.7 66.7 1.79 1.79 Floating Jan 2012 31.1 2.2 1.5 2 12.34 

rented. 

1019 Two adjoining office properties in Bad Homburg, Germany. 32.1 4.9 67.9 62.1 1.61 1.02 Floating Jan 2012 47.2 2.9 2.8 3 4.00 

1021 A shopping centre in the centre of Muelheim, Germany, 69.4 0.0 65.3 65.3 2.23 2.23 Floating Jul 2011 106.3 7.3 7.6 145 4.74 

fully let. 

1022 Mixed use retail and office property in BadenWürttemberg, 24.0 3.3 77.5 77.5 1.57 1.38 Floating Jun 2011 31.0 2.1 2.0 17 8.57 

Germany. 

1023 Two office properties in Berlin, significantly overrented. 56.0 8.4 64.5 64.5 1.82 1.82 Floating Jun 2011 86.7 5.7 4.1 25 3.40 

1024 Eight multifamily properties in northern Germany. 43.5 6.9 74.9 74.9 1.54 1.54 Floating Jun 2011 58.0 4.1 4.5 n.a. n.a. 

1025 Two multifamily properties located near Munich, Germany. 25.8 3.7 67.0 67.0 1.74 1.74 Floating Apr 2013 38.5 2.5 2.8 n.a. n.a. 

1026 A recently built shopping centre in Baden Baden, Germany. 52.2 0.0 60.0 60.0 1.64 1.64 Floating Jun 2014 87.0 4.4 5.1 36 10.77 

1027 48 grocery stores throughout Germany. 72.7 0.0 63.3 63.3 2.66 2.66 Floating Jun 2013 114.9 7.4 7.1 48 11.64 

1028 A shopping centre in the centre of Toulouse, France. 53.6 0.0 55.3 45.9 1.32 1.32 Floating Jun 2013 97.0 4.4 4.5 50 8.08 

* Excludes cash sweep paydown 


WA 

length 

to break 


14


• Appendix 2 

Copyright © 2008 by Fitch, Inc., Fitch Ratings Ltd. and its subsidiaries. One State Street Plaza, NY, NY 10004. 

Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. All of the 

information contained herein is based on information obtained from issuers, other obligors, underwriters, and other sources which Fitch believes to be reliable. Fitch does not audit or 

verify the truth or accuracy of any such information. As a result, the information in this report is provided “as is” without any representation or warranty of any kind. A Fitch rating is an 

opinion as to the creditworthiness of a security. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not 

engaged in the offer or sale of any security. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by 

the issuer and its agents in connection with the sale of the securities. Ratings may be changed, suspended, or withdrawn at anytime for any reason in the sole discretion of Fitch. Fitch does 

not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of 

any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other 

obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate 

all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 

to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an 

expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of Great Britain, or the securities laws of 

any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to 

print subscribers. 

ESTATE Pan-Europe 5: January 2008 

15

New Issue Report - Fitch Ratings - Deutsche Pfandbriefbank AG

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?