EUR442.3 million of EMEA CMBS affected
London, 11 February 2011 -- Moody's Investors Service has today downgraded the Class A1 Notes and
Class A2 Notes issued by Titan Europe 2006-5 p.l.c.
(amounts reflect initial outstandings):
....EUR330M Class A1 Notes, Downgraded
to A1 (sf); previously on Aug 20, 2010 Aa1 (sf) Placed Under
Review for Possible Downgrade
....EUR112.3M Class A2 Notes,
Downgraded to B1 (sf); previously on Aug 20, 2010 Baa3 (sf)
Placed Under Review for Possible Downgrade
The Class X Notes is currently rated Aaa (sf). Moody's does not
rate the Class A3, B, C, D, E and Class F.
Today's rating action concludes the review for possible downgrade that
was initiated for the Class A1 and A2 Notes on August 20, 2010.
Today's action takes into account Moody's updated central
scenarios as described in Moody's Special Report "EMEA CMBS:
2011 Central Scenarios."
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 revised assessment, the loss expectation
for the pool has increased since the last review in November 2009.
The rating downgrade on the Class A1 and Class A2 Notes is mainly due
to the significant negative performance issues involving two of the top
three loans in the pool (58% of current pool balance), namely
the DIVA Multifamily Portfolio loan and the Quartier 206 Shopping Centre
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; Moody's expects a 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
This transaction which closed in December 2006, represents the securitization
of initially eight commercial mortgage loans originated by Credit Suisse
International. Since closing, one loan (Hotel Balneario Blancafort
Loan -- 6.1% of the initial portfolio balance)
has repaid. The current loan Herfindahl index is 3.6,
compared to 4.2 at closing. The remaining loans are not
equally contributing to the portfolio: the largest loan (the DIVA
Multifamily Portfolio loan) represents 39.1% of the current
portfolio balance, while the smallest loan (the Hilite Warehouse
loan) represents 1.8%. The remaining loans are secured
by 40 properties which are predominantly hotel (40.3%) and
mixed-use/multi-family (39.7%). All
of the remaining properties are located in Germany. The aggregate
outstanding balance of the securitised loans is EUR614.4 million
with the weighted average U/W whole loan-to-value ratio
(LTV) standing at 112.5% as compared to Moody's weighted
average LTV of 135%.
The DIVA Multifamily Portfolio loan is secured by a large residential
portfolio (482,000 square meters) located in Eastern Germany and
Berlin. The loan has defaulted and is in special servicing since
September 2008 due to insolvency of the borrower. Since October
2008, the loan is also in payment default. In December 2009
the property portfolio was revalued at EUR193.9 million reflecting
a decline of 42% compared to closing (December 2006). As
a result, the current LTV is 140% on a whole loan basis and
128% based on the securitised loan amount. This compares
to Moody's LTVs of 151% and 133% respectively (similar
to Moody's last review in November 2009).
Compared to last review, there remains very limited visibility over
the (quarterly) cash flows currently generated by the individual properties
of the portfolio and over the amount of distributions that can be expected
from the insolvency administrator of the borrower over time. Regarding
the disposal/liquidation plan for the portfolio, there has been
some clarity from the special servicer around the marketing plan and potential
timing of the sales.
Moody's understands that the current work out strategy for the loan
includes a potential (partial) sale of the portfolio with a targeted completion
date of mid-2011. Taking into account (i) the below average
quality of the property portfolio coupled with the subdued lending and
investment market, especially for such properties, in the
next two to three years; (ii) the increased LTV compared to closing;
and (iii) the out-of-the-money interest rate swap
with a maturity date in 2016, this could result in net sales proceeds
below allocated loan amounts if (partial) disposals are completed in the
foreseeable future. The actual amounts received depend ultimately
on the final combined decision of the insolvency administrator and special
The Quartier 206 Shopping Centre loan (18.7% of the current
pool) is the third largest loan and secured by a shopping mall a prime
retail area of Berlin. This interest-only loan is in special
servicing following a payment default in April 2010. The ongoing
payment default is due to a significant deterioration in cash flows generated
by the property resulting from rental waivers and tenants vacating the
property (current vacancy rate is about 13%). About half
of the contracted rental income is contributed by sponsor-related
tenants. Some of these sponsor related tenants have contractual
options for short term termination. Lease agreements with the sponsor-related
tenants were amended since closing and lease payments were partially waived
and reduced for one to two years. Since the payment default occurred,
a large part of the EUR2.0 million quarterly interest payments
were deferred. Interest payments to noteholders have been funded
by several liquidity drawings. A revaluation of the underlying
property as per January 2010 indicated a value decline of 47% since
closing. This has triggered an appraisal reduction mechanism and
a control valuation event shifting the control rights for this loan to
the junior note from the B-note lenders. The current U/W
LTV is 150% on a whole loan basis compared an LTV of 80%
at closing. Moody's understands that the special servicer
initiated a restructuring of the loan (including negotiations with the
borrower) and that a restructuring advisor/ auditor was appointed by the
borrower in 2010 with an aim to de-lever the loan. However,
Moody's has limited visibility on the actual progress made to date.
As the sponsor (who is also involved in the DIVA Multifamily Portfolio
and Hotel Adlon Kempinski loans) has not made any contributions since
closing, Moody's has given no sponsor benefit.
Moody's current property value of EUR77 million is about 20%
lower than the most recent underwriter value and considers the prime quality
of the property, however the value is negatively impacted by (i)
the underperformance of the property management reflected in the drop
of rental cash flows and existing vacancy; (ii) the high future lease
roll over (approximately 40% of the current rent matures in the
next two years); (iii) existing vacancy of about 13% and (iv)
lease waivers applied to date. As a result, Moody's
current whole loan LTV is 188%. The downgrade action also
reflects uncertainties around any potential restructuring of this loan
and the behavior of the sponsor going forward.
The Hotel Adlon Kempinski loan (26.0% of the current pool)
is secured a prime 385-room, 5-star hotel property
located in Berlin. This fixed rate loan underperforms Moody's
expectations as the rental income decreased by approximately 10%
since closing. This decline is related to a sponsor-related
tenant leasing the restaurant area. The lease agreement with this
tenant has been amended and lease payments have been waived. The
current (fixed) rent is based on a seven year remaining lease (with option
to break a year earlier) with the hotel operator (Kempinski). The
loan is on the Servicer's watchlist as the current reported debt
service coverage ratio (DSCR) of 1.45x is below the cash trap trigger
(1.50x) since Q1 2010. As a result EUR4 .5 million
surplus funds have been trapped. The reported DSCR is based on
the net operating income (NOI) of the hotel property and related facilities.
To date, all loan interest payments have been made in full.
Moody's current property value of EUR159 million is about 45%
lower than the underwriter value of EUR288 million (unchanged since closing).
Moody's current value takes into account (i) the specific property
type; (ii) the current subdued 5-star hotel market in Berlin;
and (iii) the reduced rental cash flows (and NOI) since closing.
However, benefit is given for the prime nature of the property.
As a result, Moody's current LTV is 101% which is expected
to only slightly improve towards maturity in July 2016.
The remaining loans are all current; however the Hilite Warehouse
loan is on the servicer's watchlist due to a cash trap event.
Following the default of the largest loan, the sequential payment
trigger has been breached and all amortisation payments, prepayments
and repayments are allocated fully sequentially. The Class A1 Notes
rank senior to the Class A2 Notes. Since closing, the subordination
available to Moody's rated notes has marginally increased, from
50.1% to 51.8% for the Class A1 Notes and
from 33.1% to 34.1% for the Class A2 Notes.
Drawings under the liquidity facility occurred on most of the IPDs since
October 2008. This facility is used to cover interest shortfalls
under the DIVA Multifamily Portfolio loan and the Quartier 206 Shopping
Centre loan. Outstanding liquidity drawings as per January 2011
IPD are EUR8.2 million (EUR4.1 in July 2010). The
Class C Notes (not rated by Moody's) are subject to a partial interest
deferral as of the January 2011 Note IPD and the Class D, E and
F Notes (not rated by Moody's) are subject to full interest deferrals.
The total deferred interest amount outstanding as per January 2011 IPD
is EUR1.2 million.
Portfolio Loss Exposure: Moody's notes the bifurcated nature of
the loan pool and expects a considerable amount of losses on the securitised
portfolio, stemming from the DIVA Multifamily Portfolio loan and
the Quartier 206 Shopping Centre loan. Given Moody's reduced property
recovery value and increased default risk for these loans, the risk
of potential losses arising for the Class A1 and A2 Notes has increased
resulting in the today's rating downgrade for these classes of Notes.
The principal methodologies used in this rating were "Update on Moody's
Real Estate Analysis for CMBS Transactions 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
related to the monitoring of this transaction in the past six months.
Moody's does not have access to the underlying portfolio information relating
to the non recoverable costs.
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 12 November 2009.
The last Performance Overview for this transaction was published on 9
December 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 [email protected]
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).
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
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Structured Finance Group
Moody's Investors Service Ltd.
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Andrea M. Daniels
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Investors Service Ltd.
Moody's downgrades Class A1 and Class A2 CMBS Notes issued by Titan Europe 2006-5 p.l.c.
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