Class B Notes and Class E Notes affirmed; Class X Notes placed on review for possible downgrade
Frankfurt am Main, July 05, 2011 -- Moody's Investors Service has today downgraded the Class C Notes and Class
D Notes issued by Titan Europe 2006-1 p.l.c.
At the same time, Moody's affirmed the B2 (sf) rating of the Class
B Notes and the C (sf) rating of the Class E Notes (amounts reflect initial
outstandings):
Issuer: Titan Europe 2006-1 p.l.c.
....EUR39.76M C Certificate,
Downgraded to Ca (sf); previously on Jul 1, 2010 Downgraded
to Caa2 (sf)
....EUR46.99M D Certificate,
Downgraded to C (sf); previously on Jul 1, 2010 Downgraded
to Ca (sf)
....EUR0.05M X Certificate, Aaa
(sf) Placed Under Review for Possible Downgrade; previously on Mar
23, 2006 Definitive Rating Assigned Aaa (sf)
....EUR112.05M B Certificate,
Affirmed at B2 (sf); previously on Jul 1, 2010 Downgraded to
B2 (sf)
....EUR50.61M E Certificate,
Affirmed at C (sf); previously on Jul 1, 2010 Downgraded to
C (sf)
The Aa1 (sf) rating of the Class A Notes will remain on review for possible
downgrade due to operational risk. The rating of the Class X Notes
has been placed on review for possible downgrade in line with the assessment
described in "Global Structured Finance Operational Risk Guidelines:
Moody's Approach to Analyzing Performance Disruption Risk" methodology
published on March 2nd. Moody' has not assigned ratings to the
Class F Notes, the Class G Notes and the Class H Notes.
Today's rating action takes into account Moody's updated central scenarios
as described in Moody's Special Report "EMEA CMBS: 2011 Central
Scenarios".
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. Based on Moody's revised assessment of the parameters,
the loss expectation for the pool has increased since the last review
in July 2010.
The rating downgrade of the Class C and D Notes is driven by the write
down of the Mangusta Loan (35% of the current pool) and the KQ
Warehouse Loan (23%) which is expected to be completed within the
next couple of quarters. Based on Moody's recovery assumptions,
significant losses will be allocated on the Class C, Class D and
Class E Notes rated by Moody's. Moody's loss expectation
on the Notes takes into consideration the current outstanding liquidity
draws of EUR 8.47 million relating to those two loans.
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 the 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 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
As of the April 2011 interest payment date, the transaction's total
pool balance was EUR 348.3 million down by 52% since closing
due to repayments and prepayments, as only five of the original
ten loans remain in the pool.
The Mangusta Loan
The defaulted loan is secured by a mixed-use property portfolio
located across Germany. The properties do not produce enough cash
flows to constantly service the debt. According to the special
servicer, the bulk of the portfolio is now sold. Proceeds
are expected to be allocated to the Notes at the July 2011 Note interest
payment date. The sale of the remaining portfolio is expected to
be completed by end of 2011. Moody's expects a loss to be
borne by the Noteholders of about EUR 53 million.
The KQ Warehouse Loan
The defaulted loan is secured by a large logistics site in Leipzig and
a smaller logistics property in Kircheim. With the liquidation
of the sole tenant (Quelle AG) at the Leipzig property, the borrower
only receives rental income from the tenant of the Kircheim property.
This income is insufficient to pay the debt service on the loan.
The land associated with the Leipzig property is split into three parcels.
Two parcels have now been sold and negotiations with respect to the third
parcel are ongoing. Moody's expects a loss to be borne by
the Noteholders of about EUR 56 million.
Portfolio Loss Exposure: Moody's notes the bifurcated nature of
the loan pool and expects a high amount of losses on the securitized portfolio
stemming from the Mangusta Loan and the KQ Warehouse Loan. Those
portfolio losses are expected to result in very high losses on the junior
Notes, while the Notes more senior in the capital structure benefit
from the fully sequential allocation of recovery proceeds. In addition
to the loss expectation described above, the repayment of EUR 8.5
million of outstanding liquidity facility drawn with respect to the Mangusta
Loan and the KQ Warehouse Loan will increase the losses on the junior
Notes.
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 April 2006. Other methodology and factors
considered can be found in "Update on Moody's Real Estate Analysis
for CMBS Transaction in EMEA" published June 2005.
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 01 July 2010.
The last Performance Overview for this transaction was published on 25
May 2011.
For updated monitoring information, please contact [email protected]
To obtain a copy of Moody's New Issuer Report on this transaction,
please visit Moody's website at www.moodys.com or contact
Moody's 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 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 adopts all necessary measures so that the information it uses
in assigning a 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.
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 on our website www.moodys.com for
further information.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 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.
Frankfurt am Main
Oliver Schmitt
Vice President - Senior Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Andrea M. Daniels
VP - Senior Credit Officer
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 C and Class D CMBS Notes issued by Titan Europe 2006-1 p.l.c., German CMBS
