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Rating Action:

Moody's downgrades Class A Notes issued by Titan Europe 2007-1 (NHP) Limited, UK CMBS

Global Credit Research - 09 Feb 2011

GBP408 million of CMBS affected

Frankfurt am Main, February 09, 2011 -- Moody's Investors Service has today downgraded the Class A Notes issued by Titan Europe 2007-1 (NHP) Limited (amount reflecting the initial outstanding):

- GBP435,850,000 Class A Commercial Mortgage Backed Floating Rate Notes due October 2017, Downgraded to A1 (sf); previously on Dec 22, 2008 Downgraded to Aa2 (sf).

Moody's does not rate the Class X, Class B, Class C, Class D and Class E Notes.

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.

The rating downgrade of the Class A Notes is due to Moody's increased loss assessment for the single loan in the pool. Based on Moody's revised assessment, the loss expectation for the pool has increased since the last review in December 2008.

In Moody's view the re-assessment is justified by (i) a further value decline of the property portfolio emerged by an updated valuation for the property pool as of December 2010, which results in a UW market value of GBP827.1 million (adopting purchaser's costs of 1.75%) or GBP795.9 million (adopting purchaser's costs of 5.75%) compared to GBP886.6 million and GBP852.7 million respectively as of the last revaluation in December 2009 and compared to GBP1,338 million at closing, (ii) significant uncertainties around the future of the main tenant and therefore available rental cash flows going forward, (iii) uncertainties about the implication of the current reductions of local authorities fees on the UK healthcare property market, and (iv) the subdued lending market activities and existing significant uncertainty with respect to the path and timing for their recovery.

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 amortization 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; we expect 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

Titan Europe 2007-1 (NHP) Limited represents a true-sale securitisation of a GBP638 million senior loan (the "Senior Loan") secured by a portfolio of 297 care home properties located across the UK. The borrowers have also been granted a GBP534 million junior loan (the "Junior Loan") which has not been securitised in this transaction, but is secured by the same properties. At closing, both loans combined represented an LTV ratio of 88% for the whole loan based on the underwriter's market value and 104% based on Moody's initial model value.

As a result of the revaluation in December 2010, the UW whole loan LTV increased to 157% and the Senior Loan LTV to 82% as reported in the most current Investor Report dated 27 January 2011. This LTV calculation takes into account the current value of the interest rate swap. As of January 2011 the swap was "out of money" for the borrower in the amount of approx. GBP123.7 million, which was added to its liabilities.

Considering (i) the fact that the UW market value is based upon the aggregate of market values of the individual properties comprised within the portfolio as opposite to a portfolio value and Moody's opinion that due to the current challenging investment and lending market such portfolio value may be potentially lower, (ii) uncertainties about potential market implications of the reduction of local authorities fees, and (iii) uncertainties about the stability of the rental income connected with the perceived deterioration of the credit quality of the dominating tenant and operator Southern Cross Healthcare Limited, Moody's estimates the current market value of the portfolio in the amount of GBP680 million (approx. 40 % below Moody's closing value). This translates into a Moody's current whole loan LTV ratio of approx. 186% and the Senior Loan LTV of approx. 108% (in both cases including the current value of the interest rate swap).

This transaction is in Moody's view, fully exposed to the current adverse property market and tight refinancing environment due to its size and weak tenant covenant. Therefore, Moody's has determined a very high likelihood that the loan will remain in default and in special servicing, where it is being since November 2008.

When determining the rating level Moody's tested for its base case several scenarios assuming different recovery strategies and property values, which included (i) different methods of a potential sale of the properties by the special servicer; and (ii) reduced diversification benefit accounting for a potential negative impact on the whole UK healthcare property market of the expected modest level of fee increases, if any, imposed in the UK Government's recent comprehensive spending review. There is rating sensitivity, in particular with regard to further negative developments in relation to the property value.

Given Moody's reduced property value the risk of potential losses arising for the Class A Notes has increased resulting in the today's rating downgrade for this Class of Notes. In Moody's view, the updated rating appropriately reflects the expected loss of the Class A Notes, considering the Class A note-to-value ratio of approximately 60% compared to 54% as of the last rating action in December 2008.

RATING METHODOLOGY

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.

Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments in this transaction.

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 22 December 2008. The last Performance Overview for this transaction was published on 19 November 2010. 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 Issuer 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).

REGULATORY DISCLOSURES

The rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings and public information.

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Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Frankfurt am Main
Leokadia Szalkiewicz-Zaradzka
Vice President - Senior Analyst
Structured Finance Group
Moody's Deutschland GmbH
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 Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
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SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades Class A Notes issued by Titan Europe 2007-1 (NHP) Limited, UK CMBS
No Related Data.
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