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Global Credit Research - 17 Dec 2010
EUR 342million of CMBS affected
Frankfurt am Main, December 17, 2010 -- Moody's Investors Service has today affirmed the rating of the following
class of Notes issued by Cornerstone-Titan 2006-1 plc (amount
reflects initial outstanding):
- GBP393,437,000 Class A Commercial Mortgage Backed
Floating Rate Notes due 2015, affirmed at A3 (sf) previously on
20 July 2009 downgraded to A3 (sf) from Aaa (sf).
Moody's does not rate the Classes B through J Notes and the Class X Notes.
1) Rating Rationale
The key parameters in Moody's analysis are the default probability
of the securitised loans (both during the term and at maturity) as well
as Moody's value assessment for the properties securing these loans.
Moody's derives from those parameters a loss expectation for the
securitised pool. Based on Moody's assessment, the
loss expectation for the pool has remained stable compared to Moody's
last review. As a consequence, the current credit enhancement
of 30.7% for the affirmed Class A Notes is still sufficient
to provide protection against the expected losses and to maintain the
In Moody's view, the overall default probability of the underlying
loans has slightly increased since the last review due to a re-assessment
of the refinancing risk. Moody's property value assessment
remains unchanged since the last rating action. As a result,
the pool's weighted average (WA) loan to value (LTV) ratio was estimated
at 117% for 2010. As three loans (Woolgate Exchange,
Lloyds Chamber and Argos Distribution Centre) have additional debt in
the form of B-loans, the overall whole loan leverage based
on estimated trough values was about 127%. The currently
reported (as of October IPD) UW whole loan WA LTV ratio of 94%
(based on the updated valuations) is still well below Moody's estimated
level. Moody's expects a limited increase in commercial property
values over the next two years, as such all the loans in the pool
will be highly leveraged at refinancing. However, a substantial
balance of the portfolio benefits from long-dated leases to relatively
creditworthy tenants, which provides some protection against the
potential negative impact of deteriorated fundamentals in the current
UK occupational markets. These include falling rents, increasing
vacancy rates and higher than average tenant default rates. Moody's
anticipates that a large proportion of the pool will default over the
transaction term. However, the higher default probability
is partly offset for the Class A Notes by the currently fully sequential
payment allocation to the Notes.
Moody's analysis reflects a forward-looking view of the likely
range of collateral performance over the medium term. From time
to time, Moody's may, if warranted, change these expectations.
Performance that falls outside an acceptable range of the key parameters
may indicate that the collateral's credit quality is stronger or weaker
than Moody's had anticipated during the current review. Even so,
deviation from the expected range will not necessarily result in a rating
action. There may be mitigating or offsetting factors to an improvement
or decline in collateral performance, such as increased subordination
levels due to amortisation and loan re- and prepayments or a decline
in subordination due to realised losses.
Moody's expectation about the collateral performance and the actual
performance are also driven by wider economic and real estate market developments.
Primary sources of assumption uncertainty in this respect are the macro-economic
recovery, the current high stimulus monetary and fiscal policies
and the level of long-term interest rates as well as the ability
of banks to successfully re-capitalise in the next few years.
For the EMEA commercial real estate markets, Moody's anticipates
(i) delayed recovery in the lending market persisting through 2011 with
gradual improvement beginning late 2012, while remaining subject
to strict underwriting criteria and heavily dependent on the underlying
property quality, (ii) values will overall stabilise but with a
strong differentiation between prime and secondary properties, and
(iii) occupational markets will remain under pressure in the short term
and will only slowly recover in the medium term in line with the anticipated
economic recovery. Overall, Moody's central global
scenario remains 'hooked-shaped' for 2010 and 2011;
Moody's expects sluggish recovery in most of the world's largest
economies, returning to trend growth rate with elevated fiscal deficits
and persistent unemployment levels.
2) Transaction Overview
Cornerstone Titan 2006-1 plc closed in July 2006 and represents
the securitisation of initially ten mortgage loans secured by first-ranking
legal mortgages over initially 35 commercial properties located across
Since closing, there have been only small changes in the portfolio
composition. One loan has prepaid (Crystal Court Loan, 3.7%
of the initial portfolio balance) which was cross-collateralised
and cross-defaulted with a loan that remains in the pool (Lloyds
Chambers Loan, 16.5% of the current portfolio balance)
and there have been some property disposals from the portfolio securing
the Impact Portfolio Loan (3.1% of the current portfolio
balance). In addition, the Peacock Place Shopping Centre
Loan which defaulted in April 2009 was worked out, whereby a discounted
payoff was accepted by the Special Servicer as repayment in full of all
principal and interest due on this loan. Recovery proceeds in the
amount of GBP 3,762,729 have been allocated to the senior
Notes and losses have been allocated to the junior Notes as of April 2010
The remaining eight loans are not equally contributing to the portfolio:
the largest loan (Woolgate Exchange Loan) represents 55% of the
current portfolio balance while the smallest loan (Craven Hill Loan) contributes
only 0.7%. Following the loan prepayment and property
disposals, the remaining loans are currently secured by 24 properties
which are still predominantly offices (79%) followed by warehouse/industrial
(10%) and mixed-use (8.8%). The portfolio's
geographic concentration with 81% properties located in Greater
London and 12% in the South East is similar to the concentration
The sequential payment trigger in the transaction has been breached.
Therefore all interest and principal proceeds received by the Issuer are
allocated to the Notes on a fully sequential basis.
Currently, the biggest loan in the pool, Woolgate Exchange
Loan, is in default due to an LTV covenant breach. The LTV
ratio for the whole loan should not be greater than 84%.
However, the market value of the property as provided in the most
recent valuation (September 2010) is GBP 255m resulting in an LTV ratio
of 106.6% calculated as of the October IPD. One additional
loan, Aldermanbury Square Loan (6.8 % of the current
pool), is currently in special servicing due to a similar breach.
Based on the updated valuation as of June 2010 the LTV ratio for this
loan is 107.4% versus the covenant of 85%.
Both defaulted loans are maturing in 2011, the Aldermanbury Square
Loan in January and the Woolgate Exchange Loan in July.
The principal methodologies used in rating and monitoring this transaction
was "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"
The updated assessment is a result of Moody's on-going surveillance
of commercial mortgage backed securities (CMBS) transactions. Moody's
prior review is summarised in a Press Release dated 20 July 2009.
The last Performance Overview for this transaction was published on 8
October 2010. Please see the ratings tab on the issuer / entity
page on moodys.com for the last rating action and the ratings history.
Frankfurt am Main
Vice President - Senior Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Andrea M. Daniels
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Deutschland GmbH
Moody's affirms rating of Class A CMBS Notes issued by Cornerstone Titan 2006-1 plc
An der Welle 5
Frankfurt am Main 60322
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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