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Announcement:

Moody's Places Three EMEA CMBS classes of Portfolio GREEN on review for possible downgrade

Global Credit Research - 03 Sep 2010

EUR 151 million of EMEA CMBS affected

London, 03 September 2010 -- Moody's Investors Service has today placed on review for possible downgrade the Classes B, C and D Notes issued by Portfolio GREEN German CMBS GmbH ("Issuer"). At the same time, Moody's confirmed the ratings of the Classes E, F and G Notes (amounts reflecting initial outstandings):

EUR40M Class B Secured Floating Rate Notes due 2050, Aa1 (sf) Placed Under Review for Possible Downgrade; previously on Apr 9, 2009 Downgraded to Aa1 (sf)

EUR40M Class C Secured Floating Rate Notes due 2050, A2 (sf) Placed Under Review for Possible Downgrade; previously on Dec 21, 2009 A2 (sf) Remained On Review for Possible Upgrade

EUR35M Class D Secured Floating Rate Notes due 2050, Baa3 (sf) Placed Under Review for Possible Downgrade; previously on Dec 21, 2009 Baa3 (sf) Remained On Review for Possible Upgrade

EUR20M Class E Secured Floating Rate Notes due 2050, Confirmed at Caa1 (sf); previously on Dec 21, 2009 Caa1 (sf) Remained On Review for Possible Upgrade

EUR12M Class F Secured Floating Rate Notes due 2050, Confirmed at Caa2 (sf); previously on Dec 21, 2009 Caa2 (sf) Remained On Review for Possible Upgrade

EUR4M Class G Secured Floating Rate Notes due 2050, Confirmed at Caa3 (sf); previously on Dec 21, 2009 Caa3 (sf) Remained On Review for Possible Upgrade

Moody's did not assign ratings to the Class H Notes.

1) Transaction Overview and Current Performance

In this transaction, Lehman Brothers Bankhaus AG ("Seller") sold its economic interest in claims for interest and principal under a portfolio of mortgage loans granted to individual and corporate borrowers in Germany to the Issuer. The legal title in the underlying loans and respective collateral was ultimately transferred to the Collateral Agent (Florian (No.3) GmbH). The initial 416 mortgage loans with a principal balance of EUR 585.4 million were combined into 98 borrower groups. The loans are secured by commercial properties, including office (40% of the current pool), retail (15%), residential (13%), mixed-use (13%) and other types including hotel and nursing homes (19%) located in Germany.

Since closing of the transaction in November 2007, the number of loans decreased to 256, the number of borrower groups decreased to 61 and the outstanding balance decreased to EUR 300.5 million (51% of the total balance at closing) as per last interest payment date ("IPD") in July 2010. Approximately 31% of the current loan pool is represented by the largest borrower group (G13) with a total loan balance of currently EUR 97.3 million. The average size of a borrower group of the remaining 69% of the pool is approximately EUR 3.4 million.

As of July 2010, two borrower groups (2.3% of the current pool) reported amounts in arrears of approximately EUR 45,023 and one borrower group (0.7% of the pool) was transferred into special servicing.

On the IPD in July 2010, an amount of EUR 4.1 million was drawn from the liquidity facility. The drawing mainly resulted from (i) lesser collections for the collection period preceding the July 2010 IPD. An amount of collections in excess of EUR 1.0 million was not transferred to the Transaction Account in time for distribution. Such collections however will be available and be taken into account on the October 2010 IPD. And, (ii) fees and expenses incurred on the Portfolio over the course of the transaction from the cut off date up to the July 2010 IPD but only accurately reflected in the reports for the July 2010 IPD, together with legal fees and Portfolio Prime Servicing expenses, incurred during the collection period immediately preceding the July 2010 IPD.

On 3 August 2010, Moody's received a notice from the issuer which provided an update on court proceedings initiated by a borrower. The borrower had protested against the transfer of the loan receivable to the Collateral Agent shortly after being informed of such transfer. The principal amount of the loan is approximately EUR 1.1 million (0.4% of the current pool). The proceedings at both the District Court and the Higher Regional Court ended with rulings against the borrower. The borrower has now filed a further appeal to the Federal Court of Justice. The outcome of this appeal is pending.

2) Rating Rationale

Today's review for downgrade action of the Classes B, C and D Notes is driven by the deterioration and increased volatility of the cash flows generated by the properties securing the two largest borrower groups (39% of current pool) and the resulting decline of the respective property values. This action amends the previous review for upgrade status of the Classes B, C and D Notes. Moody's believes that the overall weaker than initially expected credit aspects of the pool outweighs the positive aspect of the replacement of the swap counterparty for which classes C to G had been placed on review for upgrade on 21 October 2009. Based on Moody's current assessment, the rating agency believes that the current rating levels of the Classes E, F and G Notes are commensurate with the weakened credit profile of the pool.

In Moody's view, the overall default risk of the pool has increased compared to closing. For its preliminary assessment, Moody's selected the two largest borrower groups due to the relative size in relation to the total portfolio, the decline of the value of the property security and the recent updates provided by the Portfolio Sub-Servicer.

Borrower Group G13 (31% of the current pool): The borrower group is comprised of two loans with a total current loan balance of EUR 97.3 million. The average remaining loan term to the reset date and maturity date are, respectively, 3.8 years and 35.1 years. The current weighted average U/W LTV is 82%. The collateral is a single office property located in Munich and since closing the U/W market value of EUR 142.4 million has not been updated. The asset is fully occupied and provides a total of 74,833 sqm of office space. Approximately 99% of the annual rental income is contributed by Deutsche Bahn AG (Aa1). An equal ranking loan, not securitised in the transaction, in relation to the first ranking mortgage currently amounts to EUR 20.1 million.

According to the Portfolio Sub-Servicer, the fixed-term lease contract of Deutsche Bahn AG (accounting for approximately 70% of the lettable area) expired in Q1 2010. However, the tenant is still in occupancy due to the subsequent lease rollover subject to a nine months notice period. The borrower is currently in negotiations with the tenant to extend the lease. For the purpose of its analysis, Moody's assumes the renewal of a long-term lease and lower rental cash flows. Moody's expects a further update on the final economic terms of the new lease and the level of net operating income.

In its preliminary assessment Moody's adjusted the property value down to reflect a potential decline in rental cash flow resulting from the new lease terms. Moody's anticipates a significant increase in the expected default rate for this borrower group at its reset date in July 2014. The higher refinancing default risk mainly results from the high leverage of the borrower group in 2014 particularly taking into account the equal ranking claim.

Borrower Group G11 (8% of the current pool): The borrower group is comprised of two loans with a total loan balance of currently EUR 28.0 million. The average remaining loan term to the reset date and maturity date are, respectively, 3.1 years and 19.8 years. The current weighted average U/W LTV is 56%. The collateral is a single mixed use property located in Seeshaupt, at the Lake Starnberg, and since closing the U/W market value of EUR 50.3m has not been updated. The property comprises three buildings. One of the buildings provides 120 units for senior living, another functions as a hotel with 31 bedrooms and the third building is used for administration office.

According to the Portfolio Sub-Servicer, the current net operating income of the property for 2010 has fallen by about 67% to EUR 1.0 million from the EUR 3.0 million that had been initially anticipated. The reasons for the reduced rent are: (i) commencing January 2010, the borrower and the tenant agreed to re-negotiate the rent on an annual basis and (ii) extension and maintenance works at the property resulted in additional vacancies and a general rent reduction for the tenants. Currently the shortfall of the loans' debt service is borne by the sponsor. As yet, no public information is available as to whether the rental income will increase in the future.

In its preliminary assessment Moody's took into account the lower rental cash flow, the current uncertainties regarding future rental income and the impact on the property's market value. Based on its reassessment, Moody's anticipates an increased default risk for the borrower group during the term and at the reset date in September 2013.

In its review process, Moody's will take into account (i) a further in depth review of the remaining borrower groups, (ii) potential implications of the drawings under the liquidity facility of the Issuer to date and in particular on the July 2010 IPD and (ii) the pending court proceedings concerning the validity of the transfer of a loan receivable initiated by a borrower.

3) Rating Methodology

The principal methodologies used in rating and monitoring the transaction were "Update on Moody's Real Estate Analysis for CMBS Transaction in EMEA" June 2005 and "Moody's Updates on its Surveillance Approach for EMEA CMBS" March 2009, which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website. The last Performance Overview for this transaction was published on 23 August 2010.

Further information on Moody's analysis of this transaction is available on www.moodys.com. In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.

For updated monitoring information, please contact monitor.cmbs@moodys.com. To obtain a copy of Moody's Pre-Sale Report on this transaction, please visit Moody's website at www.moodys.com or contact our Client Service Desk in London (+44-20-7772 5454).

London
Manuel Rollmann
Associate Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

New York
Andrea M. Daniels
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom

Moody's Places Three EMEA CMBS classes of Portfolio GREEN on review for possible downgrade
No Related Data.
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