Class C Notes confirmed
Frankfurt am Main, February 17, 2011 -- Moody's Investors Service has today affirmed, confirmed and downgraded
the following classes of Notes issued by Titan Europe 2007-3 Limited
(amounts reflect initial outstandings):
GBP463.04M Class A1 Notes, Downgraded to Baa3 (sf);
previously on Dec 16, 2010 Baa1 (sf) Placed Under Review for Possible
GBP115.76M Class A2 Notes, Downgraded to Caa1 (sf);
previously on Dec 16, 2010 Ba3 (sf) Placed Under Review for Possible
GBP54.39M Class B Notes, Downgraded to Caa3 (sf); previously
on Dec 16, 2010 B3 (sf) Placed Under Review for Possible Downgrade
GBP52.79M Class C Notes, Confirmed at Ca (sf); previously
on Dec 16, 2010 Ca (sf) Placed Under Review for Possible Downgrade
GBP53.19M Class D Notes, Affirmed at C (sf); previously
on Jun 16, 2009 Downgraded to C (sf)
Moody's does not rate the Class E, Class F, Class G,
Class V and Class X Notes issued by Titan Europe 2007-3 Limited.
Today's rating action concludes the review for possible downgrade that
was initiated for the Class A1, Class A2, Class B and the
Class C Notes on 16 December 2010. Today's rating action takes
Moody's updated central scenarios into account, 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 significantly since the last review in June
The rating downgrade on the Class A1, A2 and B Notes is mainly due
to (i) Moody's re-assessment of the refinancing risk; (ii)
the already realised losses on the notes and (iii) the expected loss for
the remaining loans in the pool.
Moody's expects most of the loans to default in 2012 and 2013 when
the remaining loans in the pool will mature. The transaction is
overly exposed to secondary property quality in the UK. The availability
of financing for this market segment decreased over the past year and
Moody's does not expect a significant recovery of the lending market in
the next two years, when the majority of the loans in the pool mature,
as per its EMEA CMBS 2011 Central Scenario. The loans show an overall
Moody's LTV ratio of well above 100%, which makes a refinancing
in this lending market environment very unlikely.
Moody's estimates a high severity of the remaining loans in case
of a default given the high Moody's LTV ratios of the loans.
Moody's does not expect a material recovery of property values in
the non-prime property market segment in the next two years.
On aggregate, losses of GBP 33.5 million (4% of the
initial pool balance) have already been allocated to the notes.
In addition, further losses are expected to be allocated after the
final work-out of a further loan with an outstanding loan balance
of GBP 35 million.
The transaction performance is especially sensitive to future developments
in the UK secondary property market segment because of the high exposure
to this market. An increased availability of financing for non-prime
properties combined with a significant recovery of property values in
the non-prime market could lead to a reduced default risk of the
loans at their maturity date.
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
As of the January 2011 interest payment date, the transaction's
total pool balance was GBP 652.9 million down by 16% since
closing due to repayments and liquidations. Only one loan (Auric
loan, 7.1% of initial pool balance) repaid in full.
Further four loans have been liquidated, resulting in an aggregate
loss of GBP 33.5 million (65% loss severity on average).
On the interest payment date in January 2011, the recovery proceeds
from the sale of the property securing a further loan (Metro Loan,
5.1% of initial pool balance) were partly allocated to the
notes. Approximately GBP 4 million were allocated as principal
payments reducing the outstanding loan amount to approximately GBP 35
million. Moody's expects that after the final loss calculation
for the loan most of the outstanding loan amount will be allocated as
losses to the notes.
The transaction shows a significant exposure to single tenanted properties.
Overall nine loans accounting for 63% of the current pool balance
are secured by single properties let to single tenants. The good
tenant quality for most of the loans mitigates the higher term default
risk because of the single-tenant risk and the higher loan severity
if the tenant defaults because of the lower vacant possession value for
an empty property. For all of these loans, the default risk
is driven by the high refinancing risk because of the high Moody's
Loan-to-Value ("LTV") ratio and the limited availability
of financing for non-prime properties in the next two years,
which Moody's expects. The pool weighted average Moody's
whole loan LTV ratio at loan maturity is 133%.
The largest loan in the pool is the Regulator loan accounting for 27%
of the current pool balance. The loan is secured by a good quality
office property located in Canary Wharf in London and let to the Financial
Services Authority on a lease expiring in 2018. Because of the
high Moody's LTV ratio of 126% Moody's assesses the default
risk at loan maturity in October 2013 as very high while the term risk
is low given the good quality tenant on a long lease.
After the work-out of the five defaulted loans, there is
currently only one loan with an event of default. The Bacchus Loan
accounting for 9% of the current pool balance is secured by a portfolio
of 14 industrial estates located throughout England and Scotland.
The portfolio shows a high vacancy rate of 31% and mostly short
running leases. The loan was transferred to special servicing in
July 2009 due to a payment default. The Special Servicing on this
loan has been transferred to Hudson Associates. The portfolio is
currently marketed. According to the special servicer, there
were advanced sales negotiations for five properties as at the January
interest payment date. Because of a re-valuation of the
portfolio during the last quarter showing a value reflecting a whole loan
LTV ratio of 208% and a subsequent appraisal reduction no interest
advances are made for this loan. Hence Moody's expects further
interest deferrals on the junior notes.
Portfolio Loss Exposure: Moody's expects a very high amount of losses
on the securitised portfolio, stemming mainly from the refinancing
profile of the securitised portfolio. Given the default risk profile
and the anticipated work-out strategy for defaulted and potentially
defaulting loans, these expected losses are likely to crystallise
only towards the end of the transaction term. The already allocated
losses combined with the losses to be allocated after the finalised work-out
of the Metro Loan will lead to reduced subordination levels for the remaining
classes of notes. The anticipated subordination levels after the
loss allocation regarding the Metro Loan provide protection against the
expected losses. However, the likelihood of higher than expected
losses on the portfolio has increased substantially, which results
in today's rating action.
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 received and took into account one or
more third party due diligence reports on the underlying assets or financial
instruments in this transaction and the due diligence reports had a neutral
impact on the rating.
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 11 December 2009.
The last Performance Overview for this transaction was published on 10
January 2011. 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 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).
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
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
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Please see ratings tab on the issuer/entity page on Moodys.com
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Frankfurt am Main
Vice President - Senior Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
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Andrea M. Daniels
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Deutschland GmbH
Moody's downgrades Classes A1, A2 and B Notes issued by Titan Europe 2007-3 Limited, UK CMBS
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