Approximately EUR 549 million of CMBS affected
London, 08 October 2009 -- Moody's Investors Service has today downgraded the following class of
Notes issued by Cornerstone Titan 2007-1 p.l.c.
(amounts reflect initial outstandings):
EUR333M Class A2 Commercial Mortgage Backed Floating Rate Notes due 2017,
Downgraded to Aa3; previously on Apr 8, 2009 Aaa Placed Under
Review for Possible Downgrade
EUR75.1M Class B Commercial Mortgage Backed Floating Rate Notes
due 2017, Downgraded to Baa3; previously on Apr 8, 2009
Aaa Placed Under Review for Possible Downgrade
EUR44.175M Class C Commercial Mortgage Backed Floating Rate Notes
due 2017, Downgraded to Ba3; previously on Apr 8, 2009
Aa1 Placed Under Review for Possible Downgrade
EUR97.185M Class D Commercial Mortgage Backed Floating Rate Notes
due 2017, Downgraded to B3; previously on Apr 8, 2009
A1 Placed Under Review for Possible Downgrade
At the same time Moody's has affirmed the Aaa rating of the Class A1 and
Class X Notes. Moody's did not assign ratings to the Class E,
F, G, VA and VB Notes of the Issuer.
Today's rating action concludes the review for possible downgrade that
was initiated for Class A2, B, C and D Notes on 8 April 2009
and takes Moody's updated central scenarios into account, as described
in Moody's Special Report "Moody's Updates on Its Surveillance Approach
for EMEA CMBS".
1) Transaction and Portfolio Overview
Cornerstone Titan 2007-1 p.l.c. closed in
March 2007 and represents the securitisation of initially 18 mortgage
loans originated by Credit Suisse and 14 loans originated by Capmark.
The loans were initially secured by first-ranking legal mortgages
over 167 properties located across Germany (79%), France
(15%), Poland (4%), Switzerland (2%)
and the Netherlands (1%). By annualised base rent,
the portfolio comprised 42% mixed-use properties (mainly
office, retail and warehouse), 21% office properties,
20% retail properties, 9% multifamily, 1%
hotel properties and 8% other properties. At the time of
closing, this was the first true sale conduit transaction including
Since closing of the transaction, four loans (7.4%
of the initial pool balance), prepaid in full. The prepayment
proceeds were allocated 50% sequential and 50% pro-rata
to the Notes. The remaining loans are not equally contributing
to the portfolio: the largest loan (Xanadu Loan) represents 24.1%
of the current portfolio balance, while the smallest loan (the Dusseldorf
Loan) represents 0.4%. The current loan Herfindahl
index is 9.0 compared to 10.6 at closing. Following
the prepayments, the remaining 28 loans are secured by 147 properties
with similar property type composition as per closing: mixed-use
(47%), office (19%), retail (22%) and
other property types including multifamily (9%). 79%
of the properties are currently located in Germany, 17% in
France, 2% in Switzerland, 1% in Poland and
1% in the Netherlands.
As of the last interest payment date ("IPD") in July 2009,
all 28 reamining loans were current while one loan (the Loews Loan,
8.4% of the current portfolio) was in special servicing.
The sequential payment trigger in the transaction has not been breached
2) Rating Rationale
Today's rating actions follows a detailed re-assessment of
the loan and property portfolio's credit risk. Hereby, Moody's
main focus was on property value declines, term default risk,
refinancing risk and the anticipated work-out timing for potentially
defaulting loans. In its review, Moody's especially concentrated
on the largest loans in the portfolio accounting for on aggregate 64.2%
of the current portfolio, i.e. the Xanadu Loan,
the Hugo Loan, the Loews Loan, the Wolfsburg Loan and the
German Retail Portfolio III Loan.
As outlined in more detail below, today's rating action is mainly
(i) the refinancing profile of the transaction with approximately 27%
of the loans maturing in 2010 and 2011;
(ii) the most recent performance of the European commercial property markets;
(iii) Moody's opinion about future property market performance.
Driven by, in most cases, a higher default risk assessment
at the loan maturity dates, Moody's now anticipates that a very
large portion of the portfolio will default over the course of the transaction
term. Coupled with the negative impact of reduced property values,
Moody's expects a substantial amount of losses on the securitised portfolio.
The current subordination level for Moody's rated classes are 53.6%,
26.6%, 20.5%, 16.9%,
9.0% for the Class A1, the Class A2, the Class
B, the Class C and the Class D notes respectively. While
the subordination provides protection against losses for the more senior
Notes, also the likelihood of higher than expected losses on the
portfolio has increased substantially, which results in today's
Since closing, four loans amounting to 7.4% of the
original portfolio balance prepaid in full. The prepayment proceeds
of the loans were allocated to the notes on a 50% sequential and
50% pro-rata basis. At the same time, the loan
portfolio provides for limited scheduled principal repayment over time.
As a result, the Notes benefited only to a limited extent from an
increase in subordination levels since closing.
The Class A2, Class B, Class C, Class D Notes are subordinated
in the transaction's capital structure. Due to this additional
leverage, the higher portfolio risk assessment has a relatively
bigger impact on the expected loss of the more junior Notes than on the
expected loss of the senior Notes.
The Class X Notes are entitled to receive the difference between (i) interest
payable on the loans and (ii) interest payable on the Notes and certain
costs. Servicer advances can be used to cover potential interest
shortfalls on the Class X Notes. In relation to principal,
the net proceeds from the issue of the Class X Notes have been retained
by the Issuer in the Issuer Class X Account for the purpose of repaying
the principal amount of the Class X Notes. Moody's believes that
the Class X Notes have a different risk profile in comparison to the other
classes in the transaction given their characteristics. The rating
of the Class X Notes is therefore not directly affected by the credit
risk of the loan portfolio.
3) Moody's Portfolio Analysis
Property Values. Property values across the Continental European
markets have declined, in some markets significantly, until
mid-2009 and are expected to continue to decline at least until
2010-2011. Moody's estimates that compared to the underwriter's
("U/W") values at closing, the values of the properties securing
this transaction have declined on average by approximately 16.5%
until mid-2009 (ranging from a 34.0% decline for
the Solstice Loan to no decline for the German Retail Portfolio I Loan).
Looking ahead, Moody's anticipates further declines until 2010 and
2011, resulting in, on average, a 21.4%
value decline from the closing U/W value to Moody's trough value (ranging
from a 34.0% decline for the Solstice Loan to a 0%
decline for the German Retail Portfolio I). In September 2009,
the servicer has received an updated open market valuation of the Loews
portfolio from DTZ of EUR104.3 million which represents a 25.7%
decline from the value at closing on a like for like basis. This
new valuation is at the same level as the Moody's mid-2009
value in for this property portfolio.
Based on this property value assessment, Moody's estimates that
the transaction's mid-2009 weighted average ("WA") securitised
loan-to-value ("LTV") ratio was 90.0% compared
to the current U/W LTV of 76.9% (taking into account the
updated value for the properties securing the Loews Loan). Due
to the further envisaged declines, the WA LTV will increase in Moody's
opinion to 96.4% in 2010 and will only gradually recover
thereafter. Based on Moody's anticipated trough values, the
LTVs for the securitised loans range between 117.9% (Solstice
Loan) and 56.1% (Geneva Loan). As eight loans have
additional debt in the form of B-loans (amounting to EUR 84.9
million on aggregate), based on estimated trough values, the
overall whole loan leverage is on average 101.3%.
Moody's has taken the anticipated property value development, including
a gradual recovery from 2011 onwards, into account when analysing
the default risk at loan maturity and the loss given default for each
Refinancing Risk. Two loans accounting for 2.2% of
the pool are due to refinance in 2010. 13 loans accounting for
24.6% of the pool are due to refinance in 2011. The
remaining loans have maturity dates in 2013 except for the Loews loan
with maturity in 2014. However, this loan is already in default.
Moody's adjustment of the refinancing risk assessment is primarily due
to the decline in property values and its expectations that commercial
real estate lending will remain scarce over the next two to three years.
As Moody's expects property values in the Continental European markets
to only slowly recover from 2011 onwards, all loans will be still
highly leveraged at their respective maturity dates. Consequently,
in Moody's view, for all loans, the default risk at maturity
has increased substantially compared to the closing analysis. As
regards the Hugo Loan (15.7% of current portfolio balance),
44.8% of the rental income is generated by a tenant whose
lease expires in July 2012. Given that the loan matures in January
2012, Moody's believes that its refinancing prospects are
highly dependent on the decision of this tenant on the renewal of its
lease. Moody's has taken this risk into account when analysing
the default probability of the loan at maturity. However,
future rating sensitivity in relation to the tenant's decision as regards
a lease renewal cannot be ruled out.
Term Default Risk. The occupational markets in Continental Europe
are currently characterised by falling rents, increasing vacancy
rates and higher than average tenant default rates. In particular,
loans secured by properties which will experience significant lease rollover
over the next few years, could be, in Moody's view,
especially exposed to weakening occupational markets. As a consequence,
Moody's has incorporated into its analysis an allowance for deterioration
in coverage ratios and weakening tenant qualities, in turn increasing
the term default risk assumption for most of the loans.
Loan in Default and/or Special Servicing. The Loews Loan which
accounts for 8.4% of the current portfolio is in default
since September 2008 and has been transferred to special servicing.
The default was triggered by the application for opening of insolvency
proceedings in Germany of the Loews borrowers and their general partners.
Already in August 2008, administration orders were issued in respect
of other affiliated companies of the borrower group. Subsequent
to the special servicing transfer event, no debt service was paid
to the junior lender while the debt service on the securitised senior
portion of the loan is still paid. According to the Special Servicer,
a realisation agreement has since been executed which confirms that the
parties do not intend to apply for a forced auction sale or a forced administration
of the properties in court. Currently, a marketing agent
has been appointed to commence the orderly sale process of the portfolio.
Overall Default Risk. Based on its revised term and maturity default
risk assessment for the securitised loans, Moody's anticipates that
a substantial portion of the portfolio will default over the course of
the transaction term. The default risk of all loans is predominantly
driven by refinancing risk. In Moody's view, excluding the
already defaulted Loews Loan, the Hugo Loan has the highest default
risk, while the Cayenne Loan (1% of the current portfolio
balance) has the lowest risk of defaulting.
Concentration Risk. The portfolio securitised in this transaction
exhibits an average concentration in terms of property types and property
Work-Out Strategy. In scenarios where a 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 default,
a sale of the mortgaged properties and ultimate work-out of the
loan will occur at a later point in time.
Increased Portfolio Loss Exposure. Taking into account the increased
default risk of the loans, the most recent performance of the commercial
property markets in Continental Europe, Moody's opinion about future
property value performance and the most likely work-out strategies
for defaulted loans, Moody's anticipates a substantial amount of
losses on the securitised portfolio, which will, given the
backloaded default risk profile and the anticipated work-out strategy
for defaulted loans, crystallise only towards the mid to end of
the transaction term.
4) Rating Methodology
The principal methodologies used in rating and monitoring the transaction
are "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 are available on 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 4 August
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 email@example.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).
Senior Vice President
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrade four Classes of CMBS Notes issued by Cornerstone Titan 2007-1 p.l.c.
Asst Vice President - Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454