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Announcement:

Moody's affirms the rating of Class A1 CMBS Notes issued by German Residential Funding p.l.c.

16 Feb 2010

EUR 1,700 million of EMEA CMBS affected

Frankfurt, February 16, 2010 -- Moody's Investors Service has today affirmed the following Class of Notes issued by German Residential Funding p.l.c. (amount reflecting initial outstanding):

EUR 1,700M Class A1 Commercial Mortgage Backed Floating Rate Notes due 2018, Affirmed at Aaa; previously on August 22, 2006 Assigned Aaa

Moody's does not rate the Class A2, B, C, D, E and X Notes issued by German Residential Funding p.l.c.

1) Transaction Overview

The transaction closed in August 2006 and represents the securitisation of a single loan maturing in August 2013. The loan, originated by Deutsche Bank AG and Goldman Sachs Credit Partners L.P., is currently secured by, inter alia, first and second ranking security over a portfolio of approximately 76,600 residential units, 620 commercial units, about 14,000 garages and seven senior homes. The properties are predominantly located in North Rhine Westfalia (34% of the portfolio) and in Berlin (23%). The loan documentation does not provide for scheduled amortisation, but only for a full cash sweep during the last year of the loan term.

The sponsor's business plan is based on a buy-and-hold strategy. However, the borrowers have the right to dispose of properties subject to a release price between 105% and 115% of the allocated loan amount. Subject to certain conditions being met, disposal proceeds are allowed to be reinvested in eligible assets up to an amount of 25% of the initial portfolio value. Since closing, the borrowers have disposed approximately 6% of the portfolio. The disposal proceeds have been partially reinvested (EUR 82 million; 2% of the initial U/W value) with the remainder being used to amortise down the loan by about EUR 116 million (4.4% of the loan balance at closing). These proceeds have been applied predominantly on a pro-rata basis to the Notes.

The property portfolio is also encumbered by prior ranking subsidised debt amounting to about EUR 343 million as of March 2006. This prior ranking debt is subject to an amortisation schedule and amounts to approximately EUR 295 million as per the latest investor report as of November 2009. According to the loan agreement, the prior ranking claims must not exceed EUR 254.7 million at loan maturity in 2013.

2) Rating Rationale

Moody's transaction performance review was prompted by (i) the property value decline that Moody's anticipates for large multi-family portfolios since the peak of the market in 2007, and (ii) an anticipated increased refinancing risk for the loan given its size and leverage amid the more difficult market environment compared to closing taking into account the maturity date in October 2013.

Today's rating affirmation is mainly driven by (i) the good performance of the property portfolio showing increased cash flows, (ii) the moderate note to value level of 55.3% (including prior ranking claims) for the Class A1 Notes based on Moody's trough value, (iii) a modest anticipated improvement in overall market conditions until maturity in 2013, and (iv) a fully sequential allocation of all principal redemption amounts starting in November 2012. These factors are also the main mitigants against the significantly increased refinancing risk of the loan compared to closing.

3) Current Performance

Coverage and cash flows. ICR/DSCR as per last reporting date in November 2009 of 2.31x is significantly above the corresponding level of 1.5x as of the cut-off date. Despite some disposals, the NOI has increased to currently EUR 221.3 million from EUR 188.9 million at the cut-off date.

Vacancy rates. The current overall vacancy rate remains low at a level of about 4%, however, it increased from 2.5% at closing of the transaction.

Property Values. The currently reported U/W value of EUR 4.23 billion is based on the initial valuation of the total portfolio as of November 2005 and has not been adjusted for property disposals used to repay the loan by about EUR 116 million. No revaluation of the portfolio has taken place since closing of the transaction. Applying a value adjustment of about 5% to consider disposals would result in an assumed U/W value of about EUR 4.02 billion.

4) Moody's Portfolio Analysis

Property Portfolio Income and Debt Service capability. Going forward Moody's expects stable cash flows to be generated by the underlying property portfolio and therefore, that the loan will perform well above the ICR covenant of 1.15x. Despite an increase in the vacancy level to a maximum of 7% in its base case, Moody's sees only a negligible risk that effective net cash flows after non-recoverable expenses will be insufficient to meet interest payments.

Property Values. For its analysis, Moody's has used a trough value of EUR 3.48 billion (about EUR 719 per sqm of the total portfolio) in late 2010 and has only assumed a gradual increase to about EUR 3.65 billion (about EUR 755 per sqm) at loan maturity in 2013. In contrast to the reported U/W value of EUR 4.23 billion, property disposals used to repay the loan are considered in Moody's value. Moody's applied a haircut of 13% and 9% for its trough value and its value at loan maturity, respectively compared to the adjusted U/W value of EUR 4.02 billion.

Based on Moody's value assumptions, the transaction's current total LTV including prior ranking subsidised debt of presently EUR 295.3m is about 82%. Assuming the maximum allowed level of prior ranking debt in 2013 of EUR 254.7 million, Moody's total LTV expected at maturity is about 77% (disregarding any potential cash sweep amounts to be trapped during the last year of the loan term).

Default Risk. Moody's has not adjusted its assessment of the default risk of the loan during its term given the stable performance of the property portfolio. However, in Moody's view, the default risk at loan maturity has increased significantly, mainly driven by (i) the absolute size of the loan, (ii) other large loans secured by German multi-family coming up for refinancing in 2013, and (iii) only limited improvements expected in the lending and property markets over the next three years.

5) 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 1 December 2009.

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 New Issue 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
Daniel Kolter
Managing Director
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Frankfurt
Oliver Moldenhauer
Asst Vice President - Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms the rating of Class A1 CMBS Notes issued by German Residential Funding p.l.c.
No Related Data.
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