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Rating Action:

Moody's downgrades Class A1 EMEA CMBS Notes issued by Titan Europe 2006-5 p.l.c.

23 Sep 2013

London, 23 September 2013 -- Moody's Investors Service has today taken rating actions on the following classes of Notes issued by Titan Europe 2006-5 p.l.c. (amounts reflect initial outstanding):

....EUR330M A1 Notes, Downgraded to Ba1 (sf); previously on Feb 11, 2011 Downgraded to A1 (sf)

....EUR112.3M A2 Notes, Affirmed B3 (sf); previously on Nov 26, 2012 Downgraded to B3 (sf)

....EUR0.05M X Notes, Affirmed Caa1 (sf); previously on Nov 26, 2012 Downgraded to Caa1 (sf)

Moody's does not rate the Class A3, B, C, D, E, F and Class V.

RATINGS RATIONALE

Today's downgrade of the Class A1 Notes results from a heightened risk of a Note Event of Default (NEoD) in 12-18 months time, triggered by the increased uncertainty around the workout of the second largest loan in the pool, Quartier Loan (31% of pool balance). A NEoD could occur because of one of three issues: 1) following the sale of the collateral property there is a delay in the allocation of the recovery proceeds during which time Issuer level costs related to this loan will still be due but liquidity facility drawings will not be available; (2) the available liquidity facility is depleted because the loan takes longer than 15 to18 months to be worked out; or (3) senior costs, for example the special servicer expense, exceeds what can be covered by principal collections in a particular quarter. The transaction relies on liquidity facility drawings to prevent a shortfall in senior costs and Class A1 and Class X interest payments because this loan has over three years of interest arrears.

Given Moody's assessment of the underlying portfolio of loans which remains largely unchanged compared to the November 2012 downgrade action, Moody's expects full recovery on the Class A1 Notes even in the event of a NEoD.

The Class A2 Notes have had an interest shortfall every interest payment date (IPD) since October 2012 with the current cumulative shortfall standing at EUR484,679. This is mainly due to increased Issuer level costs, especially special servicing fees for which the liquidity facility cannot be drawn. The current B3(sf) rating already reflects that this Class is in default. The rating on the Class X Notes is affirmed because there is no change in Moody's risk assessment for this Class.

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.

Based on Moody's assessment of these parameters, the loss expectation for the remaining pool is large (25%-40%) which is mainly driven by the defaulted Quartier loan. Moody's current weighted average A-loan and whole loan LTV is 194% and 220% respectively. In comparison, the Underwriter (UW) A-loan LTV is 91.8% and the whole loan LTV is 107.3%. Moody's notes that for four of the six remaining loans (54% of the pool), the Moody's whole loan LTV ratios are above 90%, translating into high probability of default at maturity (>50%). All the loans mature between October 2015 and July 2016.

In general, Moody's analysis reflects a forward-looking view of the likely range of commercial real estate 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 such as property value or loan refinancing probability for instance, may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated when the related securities ratings were issued. Even so, a deviation from the expected range will not necessarily result in a rating action nor does performance within expectations preclude such actions . There may be mitigating or offsetting factors to an improvement or decline in collateral performance, such as increased subordination levels due to amortisation and loan re- prepayments or a decline in subordination due to realised 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) lending will remain constrained over the next years, while subject to strict underwriting criteria and heavily dependent on the underlying property quality, (ii) strong differentiation between prime and secondary properties, with further value declines expected for non-prime 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 anticipated economic recovery. Overall, Moody's central global macroeconomic scenario for the world's largest economies is for only a gradual strengthening in growth over the coming two years. Fiscal consolidation and volatility in financial markets will continue to weigh on business and consumer confidence, while heightened uncertainty hampers spending, hiring and investment decisions. In 2013, Moody's expects no growth in the Euro area and only slow growth in the UK.

MOODY'S ANALYSIS

Moody's reviewed a number of scenarios in its analyses of a potential NEoD. The first scenario is one in which the recovery proceeds from the Quartier loan are not allocated within the same interest payment period as when the proceeds are received. The Liquidity Facility Memorandum of Understanding that was agreed upon by the relevant transaction parties in July 2012, states that Loan Drawings to cover Loan Shortfalls cannot be made after all properties securing such loan have been sold. Therefore in the case of the Quartier loan, once the Berlin located mixed use property is sold the cash manager cannot draw on the liquidity facility to cover the interest shortfall on the loan. This a problem because the Issuer level swap payments related to this loan and the interest on the loan -- which would be used towards senior costs and Class A1 and X interest - are still due up until the special servicer makes a final recovery determination and closes the loan even if there is no collateral remaining.

The special servicer 's choice of work-out option determines the control they will have over the recovery proceeds and therefore the speed with which the loan can be closed. The two work-out options available are an enforcement through insolvency and a court auction which is effected through the enforcement of the mortgage security. With enforcement through insolvency, the insolvency administrator will control the sale process and control the release of the sale proceeds. There have been numerous cases across transactions including the subject deal where there were delays in the release of sale proceeds by the respective insolvency administrators for a wide variety of reasons. With the court auction, the sale proceeds from the auction would be paid over to the special servicer directly and without delay. In Moody's opinion, if the special servicer is in control of the proceeds a NEoD will be averted. At this stage, the special servicer is working on both options and Moody's has no clarity on which option will be chosen.

The second scenario which would result in a NEoD is if the work-out of the Quartier loan takes longer than six quarters to be finalized. This is the number of quarters before the liquidity facility would be depleted based on the current level of quarterly drawings.. Once the liquidity facility is depleted without the loan being worked out, there will be an interest shortfall on the Class A1 and X Notes. Additionally, there is likely to be incremental drawings in two to three IPDs time, given the expected bankruptcy of the Carat Park loan borrower (5.5% of the pool) and the current insufficiency of rental income to cover full interest and amortization payments on the loan. The liquidity facility drawings with respect to this loan will be small but they will still contribute to the liquidity facility being depleted slightly quicker. This second scenario has a lower probability of occurring than the first scenario because Moody's expects the Quartier loan to be worked out before scenario two could happen.

The third scenario is if there is a spike in senior costs in a quarter which cannot be covered by the principal receipts received in that quarter. The transaction has a single payment waterfall, and any type of principal receipts can be used for a shortfall in the payment of costs and Class A1 and X interest. This was the case at the July 2013 IPD when the special servicing expense increased to EUR545,038 from EUR156,923 in the previous quarter. The special servicing expense, which is different from the special servicing fee likely relates to a reimbursement of work-out costs incurred by the special servicer. Of the EUR446,948 of principal collections for the July 2013 IPD, only EUR126,493 was distributed to the Class A1 Notes as principal. The remainder was used for the shortfall in the priority of payments. It is a positive feature of the transaction that principal receipts can be used to pay senior costs. In Moody's opinion this structural feature will continue to prevent a NEoD given that there is some quarterly amortisation on the smaller loans. Moody's also expects that the special servicer has some discretion over when they charge the special servicing expense and Moody's would not expect them to cause a NEoD if there are insufficient principal receipts to cover the expense. Therefore, there is only a remote probability of this scenario occurring.

RATING METHODOLOGY

The principal methodology used in this rating was Moody's Approach to Real Estate Analysis for CMBS in EMEA: Portfolio Analysis (MoRE Portfolio) published in April 2006. The methodology used in rating Class X was Moody's Approach to Rating Structured Finance Interest-Only Securities published in February 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Other factors used in this rating are described in European CMBS: 2013 Central Scenarios published in February 2013.

The updated assessment is a result of Moody's on-going surveillance of commercial mortgage backed securities (CMBS) transactions. Moody's prior assessment is summarised in a press release dated 26 November 2012. The last Performance Overview for this transaction was published on 11 September 2013.

In rating this transaction, Moody's used both MoRE Portfolio and ABSROM to model the cash-flows and determine the loss for each tranche. MoRE Portfolio evaluates a loss distribution by simulating the defaults and recoveries of the underlying portfolio of loans using a Monte Carlo simulation. This portfolio loss distribution, in conjunction with the loss timing calculated in MoRE Portfolio is then used in ABSROM, where for each loss scenario on the assets, the corresponding loss for each class of notes is calculated taking into account the structural features of the notes. As such, Moody's analysis encompasses the assessment of stressed scenarios.

Moody's ratings are determined by a committee process that considers both quantitative and qualitative factors. Therefore, the rating outcome may differ from the model output.

REGULATORY DISCLOSURES

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of this transaction in the past six months.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Viola Karoly
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Andrea Daniels
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades Class A1 EMEA CMBS Notes issued by Titan Europe 2006-5 p.l.c.
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