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Announcement:

Moody's affirms the Class A CMBS Notes issued by Equinox (Eclipse 2006-1) plc

Global Credit Research - 25 Feb 2011

GBP329 million of EMEA CMBS affected

London, 25 February 2011 -- Moody's Investors Service has today affirmed the rating of the Class A Notes issued by Equinox (Eclipse 2006-1) plc (amount reflects initial outstandings):

GBP 329,000,000 Class A Notes, Affirmed at Baa1 (sf), previously on July 30, 2009 Downgraded to Baa1 (sf)

Moody's does not rate the Class B, C, D, E and F Notes issued by Equinox (Eclipse 2006-1) plc. Today's affirmation takes into account Moody's updated central scenarios as described in Moody's Special Report "EMEA CMBS: 2011 Central Scenarios."

RATINGS 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 revised assessment, the loss expectation for the pool has slightly increased compared with the last review in July 2009. However, the current credit enhancement of 25% for the affirmed Class A Notes, combined with a final legal maturity of 2018, is still sufficient to provide protection against the expected losses and to maintain the current rating. A further mitigant for the increased loss expectation is the fully sequential allocation of prepayments, balloon repayments, principal recoveries and scheduled amortisation to the notes upon the breach of the transaction's sequential payment trigger in January 2011.

In its current rating review Moody's focused on (i) the expected default probability of the loans at maturity, (ii) the performance of the property values securing the underlying collateral, (iii) negative implications of the current reductions of local authorities fees on the UK healthcare property market and the deterioration of the credit quality of the tenant in respect of the Ashbourne Portfolio A Loan, (iv) the impact of realised and expected losses for the Redleaf Portfolio Loan and the Macallan Portfolio Loan and (v) the existing significant uncertainty with respect to the path and timing for a recovery of the lending market.

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 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-/prepayments or a decline in subordination due to realized losses.

Primary sources of assumption uncertainty are the current stressed macro-economic environment and continued weakness in the occupational and lending markets. Moody's anticipates (i) delayed recovery in the lending market persisting through 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 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.

MOODY'S PORTFOLIO ANALYSIS

As of the January 2011 interest payment date (IPD) the transaction's total pool balance was EUR268.4 million, down 33% since closing mainly due to prepayments or partial repayments. Currently the pool consists of 11 loans compared to 13 at closing. Moody's weighted average whole loan-to-value ratio (LTV) on the pool is high at 119%. Five loans have B-loans outside the transaction. One loan, the Ashbourne Portfolio A Loan, is a syndicated loan.

The Royal Mint Court Loan, which represents the largest loan in the pool (28% of the current pool balance), has a Moody's whole loan LTV of approximately 107% (senior loan LTV of approximately 90%) at its scheduled maturity date in October 2013. The B-loan, which is outside the transaction, currently represents about 15% of the whole loan. The loan is exposed to significant rollover risk as leases representing 100% of rental income generated from the four office properties securing the loan expire in December 2013 and 2014. The properties, which are of secondary quality are located in central London. Moody's conducted different scenarios to analyse the likely impact on property value, assuming the vacation of certain tenants which has resulted in a higher refinancing risk assumption compared to our last review in July 2009.

The Ashbourne Portfolio A Loan, the second largest loan in the pool (27% of the current pool balance), has a Moody's whole loan LTV of approximately 162% (senior loan LTV of approximately 68%) at its scheduled maturity date in October 2015. The securitised debt represents the 50% pari passu portion of the super senior tranche of a whole loan. The remaining 50% is securitised in Hercules (Eclipse 2006-4) plc. The subordinated, non-securitised tranches currently represent 56% of the whole loan. The loan is secured by 90 nursing homes across the UK. For its re-assessment Moody's took into account (i) the negative implication of the current reductions of local authorities fees on the UK healthcare property market and (ii) uncertainties about the stability of the rental income in relation with the perceived deterioration of the credit quality of the three operating tenants, whose lease obligations are guaranteed by Ashbourne Holdings Ltd., part of Southern Cross Healthcare Group. Following the re-assessment, Moody's loss expectations for the loan has increased significantly compared to the last assessment in July 2009.

Based on Moody's latest information in respect of the Redleaf Portfolio Loan (2% of the current pool balance), the senior loan principal loss will be approximately 8% of the initial loan balance following the consensual sale of the five retail properties securing the loan. Based on a public notice as of 1st February 2011, the senior loan was paid down by GBP50.3 million and the current outstanding senior loan balance is GBP4.4 million. The fully sequential allocation of the recovery proceeds and the lower than anticipated principal loss, both, positively impacted Moody's current re-assessment.

Based on recent information provided by the Servicer in respect of the Macallan Portfolio Loan (12% of the current pool balance), Moody's anticipates a senior loan principal loss between 30% to 35% of the initial senior loan balance, which is broadly in line with Moody's previous expectations.

The Avocado Court Portfolio Loan (7% of current pool balance) is on the servicer's watchlist due to the lease expiry of the third largest tenant and a subsequent lease renewal for only 45% of the previously occupied space.

The principal methodologies used in this rating were "Update on Moody's Real Estate Analysis for CMBS Transaction in EMEA" published in June 2005 and "Moody's Updates on its Surveillance Approach for EMEA CMBS" published in March 2009.

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 30 July 2009. The last Performance Overview for this transaction was published on 10 January 2011.

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

London
Christophe de Noaillat
Senior Vice President
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
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Moody's affirms the Class A CMBS Notes issued by Equinox (Eclipse 2006-1) plc
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