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.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
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
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Class A Notes issued by Titan Europe 2007-1 (NHP) Limited, UK CMBS
