S&P Affms Rtgs in Canary Wharf Finance on LUL Break.

Business Editors

LONDON--(BUSINESS WIRE)--May 15, 2003

Standard & Poor's--Standard & Poor's Ratings Services said today that it affirmed its credit ratings on the notes issued by Canary Wharf Finance PLC (see list below).

The affirmation follows a review by Standard & Poor's of expected transaction performance following notice served by London Underground Ltd. (LUL) to exercise a break clause relating to its space in the estate at 30, The South Colonnade -- where it is the sole tenant, which will take place in April 2004. At 282,300 sq. ft., the LUL premises represent 13% of securitized space in the transaction. LUL pays GBP9 million per year, which represents 15% of the current rent roll.

Standard & Poor's expects that this loss in revenue will be partially offset by increases from rent reviews from outstanding and 2003 scheduled rent reviews. Standard & Poor's estimates that rent increases of approximately GBP7 million per annum will be achieved, but notes that rent reviews in the U.K. can often be a time-consuming process with rents ultimately determined by third-party arbitration.

Currently, interest cover on rated debt is 1.4x with a loan-to-reported-market-value ratio as of December 2002 of 55%. Moreover, there are a number of structural features in place to mitigate the concentration of principal amortization in 2004 and 2005 and to ensure that all payments of note interest and principal can be met during this period. These features are:

-- A principal shortfall reserve at borrower level, which

partially mitigates the risk of borrower scheduled principal

payment shortfalls. This reserve has been trapping excess cash

since January 2002 to fund to its maximum balance of GBP14.2

million;

-- A first loss fund at issuer level of GBP14.6 million,

available to meet interest and principal on the rated notes;

and

-- A GBP79 million liquidity facility at issuer level, which is

also available to meet interest and principal payments on the

rated notes.

Standard & Poor's notes that the prospect of low debt service coverage ratio levels in the period January 2004 to July 2005 was expressly referred to in its new issue report dated Aug. 20, 2001. The impact of lease breaks was therefore fully reflected in its analysis and the principal shortfall reserve introduced into the transaction as a key structural feature to meet the impact of lease breaks.

Although further lease breaks for Skadden, Arps, Slate Meagher & Flom Ltd., KPMG, and Bear Stearns International Ltd. could result in a reduction of rent of approximately GBP3 million between 2004 and 2007, this in turn may be offset by a reletting of 30, The South Colonnade.

Moreover, the recent Budget announcement that Canary Wharf Group would benefit from a stamp duty exemption on both capital and lease transactions is a material benefit to the estate. Although Standard & Poor's primary analysis of the Canary Wharf transactions is based on a cash flow analysis, LTV ratio remains a consideration in its analysis.

Therefore, although the combination of the ramp-up in principal repayments beginning in January 2004, the exercise of breaks by tenants, and challenging market considerations has stressed the transaction, Standard & Poor's points out that the transaction has sufficient structural features to enable payment of interest and principal on the notes and has thus affirmed its ratings on all classes. A downgrade of the class C notes would only have occurred if there had been significant tenant defaults, prolonged vacancies, or materially greater declines in market rent and market value than witnessed to date.

RATINGS LIST
Canary Wharf Finance PLC
GBP675 Million First Mortgage Debentures

Ratings Affirmed
Class         Rating
A             AAA
B             AA
C             A

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Copyright 2003, Standard & Poor's Ratings Services