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Announcement:

Moody's comments on the performance of the CMBS Odysseus (European Loan Conduit No. 21) FCC

Global Credit Research - 03 Jun 2010

EUR 270 million of EMEA CMBS affected

London, 03 June 2010 -- Moody's Investors Service comments on the performance of Odysseus (European Loan Conduit No. 21) FCC (ELoC 21) (amounts reflect initial outstandings):

EUR270M Class A Commercial Mortgage Backed Floating Rate Notes due 2015, Currently rated Aaa; previously on 12 December 2005 assigned definitive rating Aaa

EUR0.0003M Class X Commercial Mortgage Backed Floating Rate Notes due 2015, Currently rated Aaa; previously on 12 December 2005 assigned definitive rating Aaa

Moody's does not rate the Class B, Class C, and Class R Notes issued by Odysseus (European Loan Conduit No. 21) FCC (ELoC 21).

1) Transaction and Portfolio Overview

Odysseus (European Loan Conduit No. 21) FCC (ELoC 21) closed in December 2005. The transaction represents the securitisation of initially six commercial mortgage loans originated by Morgan Stanley Bank International Limited. At closing, the loans were secured by first ranking legal mortgages on 13 commercial properties located in France and Belgium; the portfolio comprised almost exclusively office properties.

Since closing, the pool has changed significantly. The Pascal Noel Loan (largest Loan at closing with 34.0% of the total pool) prepaid in November 2007. The proceeds were applied to the Class A Notes. In addition, the Carillion and Lexin Crown Portfolio Loans prepaid in 2007; such proceeds were applied modified pro-rata to the Class A, Class B, and Class C Notes according to certain loan buckets. Also, the Ford Loan provides for limited scheduled amortisation, which is applied modified pro-rata to the Notes.

Following the prepayment of the three loans, the transaction is currently backed by three loans and secured by first ranking legal mortgages on seven commercial properties located in France (88% of total portfolio balance) and Belgium (12% of total portfolio balance). The portfolio currently comprises, by property value, 95% office properties, 3.77% mixed use and 1.08% warehouse properties. The loans are not contributing equally to the portfolio. The biggest loan, the France Telecom Loan, represents 68% of the current portfolio balance, while the Ford Loan represents 20% and the Belgium Bonds Loan 12% of the portfolio balance. The Loan Herfindahl index is 1.9, which compares to 4.4 at the closing date and reflects the increased concentration of the portfolio. As of the last interest payment date ("IPD"), the total balance of the pool was EUR109.4 million and the balance of the Class A Notes is approximately EUR67.5 million.

Loan principal proceeds are currently allocated modified pro-rata to the Notes as the transaction had not hit its sequential payment triggers as of the last Note IPD. Based on the sequential redemption event trigger definition, the transaction should switch to fully sequential if (i) 23% of the aggregate principal outstanding amount of the loans are specially serviced French Loans or are subject to an event of default as far as the Belgium Bonds Loan is concerned; or (ii) the cumulative percentage of the loans which have defaulted since closing date is greater than 23% or more than two loans have defaulted since closing date; or (iii) there has been any loss incurred by the noteholders since the closing date.

2) Rating Rationale

Today's performance update concludes Moody's annual review for this transaction. It follows a detailed re-assessment of the portfolio's credit risk. Hereby, Moody's main focus was on property values, term default risk, refinancing risk and the anticipated work-out for potentially defaulting loans in the future. In its performance review, Moody's especially concentrated on the two largest Loans in the pool, the France Telecom Loan and the Ford Loan, which in total account for 88% of the current pool.

Strengths

The Class A Notes mainly benefit from the following strengths of the transaction:

(i) A strong increase of the subordination level available to the Class A Notes to 38.3% from 17.4% at closing, which mitigates the negative factors of increased loan concentration and leads to a favourable Note-to-Value ("NTV") of 37% for the Class A Notes based on Moody's property values;

(ii) Moderate leverage of the two largest loans in the pool, benefiting Moody's refinancing risk assessment and it's loss given default calculation for these loans;

(iii) Significantly increased rental cash flows in relation to the two largest loans compared to closing. This has benefited the debt service coverage ("DSCR") of the France Telecom Loan and the Ford Loan and has largely balanced out the negative effects of the yield widening experienced in the French property markets over the last few years; and

(iv) Good credit strength of the tenant (France Telecom, A3) occupying the property financed by the largest loan (68% of the current pool). The credit strength of Ford Motor Company, the parent company of the tenant in the properties financed by the second largest Loan (20% of the pool), is significantly weaker; however, the recent upgrade of Ford Motor Company's Corporate Family Rating ("CFR") to B1 indicates some improvement of the tenant's credit strength compared to 2008 when Ford Motor's CFR was Caa3.

Weaknesses

The credit risk of the Class A Notes is negatively affected by the following weaknesses of the transaction:

(i) Weak sequential payment triggers, which results in a continuous modified pro-rata allocation of Note level cash flows despite increased loan pool concentration and the default of the Belgium Bonds Loan (12% of the current pool); and

(ii) The underperformance of the Belgium Bonds Loan compared to our expectations at closing.

To summarise, Moody's expects a low amount of losses on the securitised loan portfolio. The current ratings of the Class A Notes and the Class X Notes are in Moody's view well positioned for the aforementioned reasons.

What Could Change the Rating -- Down?

There could be negative rating pressure in case (i) France Telecom indicates that they will exercise their lease break in 2013 which would negatively affect the property value and refinancing risk of the France Telecom Loan in 2012; or (ii) the property securing the Ford Loan becomes vacant at the loan's maturity date as a result of an unfavourable outcome of the current lease negotiations; or (iii) significant rental cash flow or underwriter ("U/W") property value deterioration of the Belgium Bonds Loan. The occurrence of one of these scenarios would likely result in only limited rating sensitivity due to still favourable NTV levels for the Class A Notes in many scenarios.

3) Moody's Portfolio Analysis

The France Telecom Loan (68% of the pool). The France Telecom Loan is overall performing in line with Moody's expectations at closing. It is an initially seven year fixed-rate loan maturing in August 2012. The loan has no scheduled amortisation and is secured by one property located in France (Paris). Since closing, the property is fully occupied by France Telecom (A3, unchanged since closing). In late 2007, France Telecom extended their initial lease agreement to December 2016 from March 2011 with a remaining break option in 2013. Based on an updated external valuation from 2007 the current U/W Loan-to-value ("LTV") is 48.0%.

Moody's expects the actual LTV based on market value to be higher at 57.6%, taking into account (i) the lease extension with France Telecom; (ii) increased rental cashflow since closing; and (iii) the adverse property market performance over the past few years. In case of loan default scenarios during its term, Moody's bases some its severity calculations on the property vacant possession value ("VPV") as the property is single let. Moody's current VPV LTV is 77%. The interest coverage ratio ("ICR") of this Loan was 3.3x as of the last IPD compared to 2.7x at closing. In Moody's view, the likelihood that this Loan will default at its maturity date has increased compared to closing. However, the refinancing default risk of this Loan remains low given (i) the LTV of 57.6% based on Moody's market value; and (ii) the exit debt yield ("EDY") of the Loan of 12.4% based on current rental cash flows. Moody's understanding is that the property securing the loan is used as France Telecom's headquarters, which supports Moody's value as well as refinancing default risk assessment.

The Ford Loan (20% of the pool). The Ford Loan is performing below Moody's expectations at closing. It is a fixed-rate loan maturing in August 2011. Due to scheduled amortisation the loan balance reduced to EUR21.6 million from EUR26.0 million at closing. The loan is secured by one property located in France (Greater Paris). The property is currently fully occupied. In anticipation of the single lease maturity in March 2011, the borrower reported as of the last IPD that negotiations with Groupe Ford France (parent company Ford Motor Company rated B1) and the current sub-tenants to renew the lease were in an advanced stage. Based on a re-valuation in 2007 the U/W value decreased by 11% to EUR35.2 million, which reflects an U/W LTV of 61.4% compared to 65.7% at closing.

Moody's expects that the current LTV is slightly lower at 57.0% considering as base case that the property will be (partially) re-let to new or the existing (sub-) tenants. Moody's has incorporated in its value assessment some uncertainty that the same level of rental cashflows can be maintained in the medium term. Currently, the DSCR of this Loan is 3.05x compared to 1.44x at closing due to increased rental cash flows. In Moody's view, the likelihood that this loan will default at its maturity date has increased compared to closing. The refinancing risk of this loan is still moderate given (i) Moody's LTV of 57.0%; and (ii) the EDY of 19.0% based on current rental cash flows. In a scenario where the loan defaults, Moody's current expectation is that the servicer will most likely not pursue an immediate sale of the property in today's depressed market conditions. Therefore, Moody's has assumed that in most cases, upon a default, a sale of the mortgaged property and work-out of the loan will occur at a later point in time.

The Belgium Bond Loan (12% of the pool). As of the February 2009 IPD, the Belgium Bonds Loan was in default and in special servicing following the failure to repay the principal at loan maturity. Based on an updated valuation, as instructed by the servicer in October 2009, the current U/W LTV increased to 69.6% compared to a closing LTV of 59.3%. After the departure of one of the main tenants in December 2007 the vacancy level (by area) increased considerably. Although recently some lease-up was reported, the current total vacant area is with 47.4% still very high, which compares to 13.7% as of closing. However, the ICR is still favourable at 1.90x as of the last IPD. In line with the transaction documentation, the servicer applies all surplus excess cash to repay the outstanding loan balance. As a result, the loan balance has reduced to EUR13.1 million from EUR14.0 million at closing. According to a notice in March 2010, the parties to the Belgium Bonds Loan agreed to extend the loan to February 2011. The loan will be removed from special servicing until two IPDs after the loan extension documents have been formally executed. Since its initial loan maturity in February 2009, the loan has been unhedged. Currently, the borrower pays a floating interest rate plus default margin. The default margin, less any administrative fees, is paid to the Class X noteholders.

Property Values. Property values across France and Belgium have declined until the end of 2009. Compared to the U/W values at closing, Moody's estimates that the values of the properties securing this transaction have declined on a like-for-like basis on average by approximately 16.2% (ranging from a 36.4% decline for the Belgium Bonds Loan to a 5.1% decline for the Ford Loan). Looking ahead, Moody's expects only a sluggish recovery of the property markets. For the properties in this pool, Moody's anticipates that the property values will be at a similar levels when the Loans mature in 2011/2012. Moody's has taken this property value estimation into account when assessing the loans' refinancing risk and potential loss given default.

Based on the above property value assessment, Moody's estimates that the current transaction's weighted-average ("WA") securitised LTV is 74.5% compared to the current U/W LTV of 64.8%. Based on Moody's values, the LTVs for the securitised Loans range between 87.3% (Belgium Bonds Loan) and 57.0% (Ford Loan). None of the loans in the pool have additional debt in the form of B-Loans.

Refinancing Risk. The transaction's exposure to loans maturing in the short term is high. The Belgium Bond Loan (12% of the pool) matures in February 2011, the Ford Loan in August 2011 (20% of the pool), and the France Telecom Loan (68% of the pool) is due for refinancing in August 2012. As Moody's expects property values in this pool to remain stable, all loans will remain at least moderately leveraged at their respective maturity dates. In Moody's view, for all of the three loans, the default risk at maturity has increased considerably compared to the closing analysis.

Term Default Risk. The occupational markets in France and Belgium are currently bottoming out, showing compared to the market peak reduced rents and increased vacancy rates driven by, inter alia, higher than average tenant default rates. The loans in the pool are secured by properties which are subject to lease rollover risk closely before or after their loan maturities. Moody's has incorporated into its analysis some allowance for a deterioration in coverage ratios and weakening tenant quality; overall, compared to closing the term default risk assumption for the loans has remained similar.

Overall Default Risk. Based on its revised default risk assessment for the securitised loans, Moody's anticipates that a small portion of the Loans will default over the course of the remaining transaction term. The default risk of the loans is predominantly driven by refinancing risk. In Moody's view, the Belgium Bonds Loan and the Ford Loan (32% of current portfolio balance) have currently the highest default risk, while the France Telecom Loan (68% of the current portfolio) has the lowest risk of defaulting.

Concentration Risk. The Loan portfolio securitised in this transaction exhibits an above average concentration in terms of property types (office) and property location (Paris).

Increased Portfolio Loss Exposure. Taking into account the moderate default risk of the loan portfolio, the recent performance of the commercial property markets in France and Belgium, Moody's opinion about future property markets performance and the most likely work-out strategies for any defaulted loan, Moody's anticipates a low amount of losses on the securitised loan portfolio, which (if any) will, given the anticipated work-out strategy for defaulted loans, crystallise only towards the end of the transaction term (legal final maturity date of the Notes is in August 2015).

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 19 February 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 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
Christian Aufsatz
Senior Vice President
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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

Moody's comments on the performance of the CMBS Odysseus (European Loan Conduit No. 21) FCC
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