A €375m loan secured on a range of Irish assets owned by Johnny Ronan and Richard Barrett's Real Estate Opportunities can be repaid using excess cash held in a reserve account, the company has said.
Responding to a downgrade on all classes of the loan, the company said the loan was being serviced by income from blue chip tenants and there was no issue of default. Fitch has said the company will not be able to meet so-called "balloon'' payments which form part of the loan. The downgrade reflects the huge slump in commercial property values in the market.
While occupancy in the REO portfolio is strong, the agency said the collateral underpinning the loan is under pressure, with values down 46pc since August 2008.
The assets are held by Castle Market Holdings a subsidiary of REO and include the Stillorgan Shopping Centre. The loan in question is known as Eurohypo.
"The Eurohypo loan continues to perform and is serviced by a strong income flow generated from a broad range of well located, blue chip tenants mainly in Dublin.
"Excess cash in the reserve account will be used to repay the loan on maturity in 2013,'' said a company spokesman. "Occupancy levels remain well above 90pc with the majority of the portfolio single let office properties to prestigious occupiers including KPMG, Mason Hayes & Curran, FAS and Bank of Ireland Asset Management and there are no material tenant defaults,'' the spokesman for Castle Market Holdings said.
Fitch has placed portions of the debt on negative watch, possibly for further downgrade.
"The ongoing weakness of the Irish commercial property market, as well as the broader deterioration of the Irish macroeconomic situation, drives the negative outlooks on all classes of the notes''.
"Their actions were not linked in any way to a recent downgrade of Ireland, it said. "The properties are of good to average quality and are primarily located in Dublin, with a single retail asset in Cork,'' said the agency.
"In general, the collateral benefits from a good lease rollover profile, with a weighted average lease term-to-break of 14.6 years that extends over 10 years after the maturity of the loan,'' it added.
As the portfolio displays a strong income profile, which largely insulates it from term default risk, Fitch's key concern relates to the balloon risk at loan maturity in January 2013,'' it warned. Balloon payments involve the borrower paying a large sum at the end of the loan. Normal loans are amortised or paid off gradually over the term of the loan.
"The agency expects the loan to fail to repay at its scheduled maturity,'' it added.
REO is majority owned by Treasury Holdings and this firm is owned by Johnny Ronan and Richard Barrett.
REO was one of the first Irish companies ever to sell its loans onto investors in a process called securitisation. The loans are pooled together and put into a vehicle called a commercial mortgage backed security.