Scope assigns a preliminary rating of (P)BBBsf to the EUR 60m credit-linked note to be issued by the Herrenhausen Investment S.A. - Compartment I in March 2014. The CLN is exposed to the credit losses that may arise on a static EUR 1.29bn commercial real estate portfolio originated by Deutsche Hypothekenbank Actien-Gesellschaft. The synthetic transfer of credit risk to the CLN is achieved through a contractual agreement between Herrenhausen Investment S.A. and Deutsche Hypothekenbank. The issuance proceeds of the CLN will be deposited in a cash collateral account held by Deutsche Hypothekenbank.

Key rationale for the rating:
+ the credit quality of the underlying loan pool mostly exposed to office and retail commercial real estate, is commensurate with an average investment grade credit risk profile;
+ the structural credit enhancement, which protects the CLN against the first 1% of losses arising on the underlying pool;
+ the amortization mechanism of the transaction leading to an accelerated amortization of the CLN under certain conditions;
+ the experience of Deutsche Hypothekenbank, which acts as loan originator and servicer in the transaction, in the commercial real estate market;
- the underlying pool´s 16.1% of loans that Scope has assessed as non-investment grade credits;
- the credit risk exposure of the CLN’s full notional and coupon to Deutsche Hypothekenbank as cash collateral account provider and credit protection buyer.

Scope has performed independent credit assessments of the underlying loans in the pool and of the major counterparties, especially Deutsche Hypothekenbank, to incorporate all relevant transaction features.

The rating of the CLN is linked to and constrained by Scope’s credit opinion on Deutsche Hypothekenbank. Scope’s internal credit review of Deutsche Hypothekenbank reflects the profit/loss-transfer agreement with Nord/LB, the support from major shareholders (German sub-sovereigns) and the safety net mechanisms provided by the Deutsche Sparkassen und Giroverband-Association.

Scope’s rating reflects the expected loss on the interest and principal of the rated notes by March 2052. In order to rate this transaction, Scope has applied its Structured Finance Methodology Guidelines (December 12, 2013). A detailed rating report about Herrenhausen Investment S.A. - Compartment I - Inhaberschuldverschreibung has been published by Scope and is available under www.scoperatings.com

Regulatory information: Sebastian Dietzsch (lead analyst); Philipp Wass (back-up analyst); Guillaume Jolivet (chairman of rating committee).

Additional information to the rating and to regulatory requirements for ratings are documented in the rating report published on the website at www.scoperatings.com.