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Rating Action:

Moody's downgrades and confirms EMEA CMBS Notes issued by Titan Europe 2006-1 p.l.c.

07 Aug 2012

Frankfurt am Main, August 07, 2012 -- Moody's Investors Service has today downgraded the Class B and Class C Notes and confirmed the Class A Notes issued by Titan Europe 2006-1 p.l.c. (amounts reflect initial outstandings):

....EUR433.76M A Notes, Confirmed at Aa2 (sf); previously on Feb 24, 2012 Aa2 (sf) Placed Under Review for Possible Downgrade

....EUR112.05M B Notes, Downgraded to Caa2 (sf); previously on Feb 24, 2012 B2 (sf) Placed Under Review for Possible Downgrade

....EUR39.76M C Notes, Downgraded to C (sf); previously on Jul 5, 2011 Downgraded to Ca (sf)

Today's action concludes Moody's review of the Class A Notes, Class B Notes and Class X Certificates which were placed on review for possible downgrade on 24 February 2012 due to concerns about the availability of the Liquidity Facility. The Class X Certificates remain on review as a result of the rating action taken on 23 February 2012 which followed the introduction of a global methodology for rating structured finance IO securities.

The Class D and the Class E Notes are not affected by this rating action. Moody's does not rate the Class F, Class G and the Class H Notes.

RATINGS RATIONALE

Today's downgrade of the Class B Notes reflects the increased loss expectation related to the Tiden loan. Additionally, the Class C Notes will suffer principal losses due to the work-out of the defaulted Mangusta and the KQ Warehouse loans and is susceptible to potential further losses stemming from the remaining loans, in particular the Tiden loan. The significant credit enhancement of over 81% insulates the Class A Notes from the increased loss expectation.

The confirmation of the Class A Notes follows the Issuer's notice from 23 July 2012 that removed the immediate concern that the Liquidity Facility would be unavailable to pay interest on the notes. On 24 February 2012, Moody's placed the Class A Notes, the Class B Notes and the Class X Certificates on review after an Issuer notice stated that the Issuer received a letter from the Facility Provider (HSBC Bank plc) asserting that - inter alia- (i) a Liquidity Facility Event of Default is outstanding, (ii) the facility commitment is cancelled, (iii) no further drawings can be made under the facility and (iv) the amounts outstanding under the facility are due and payable. On 23 July 2012, a further notice was issued. According to the notice, the Issuer, the Liquidity Facility Provider and some other relevant transaction parties entered into a memorandum of understanding. In the memorandum the parties have agreed the interpretation and operation of certain ambiguous provisions in the Liquidity Facility Agreement, the Cash Management Agreement and the Servicing Agreement. It also contained-- inter alia -- a clarification of the repayment mechanism of the Liquidity Facility and a waiver of the alleged Liquidity Facility event of default. The execution of the memorandum removed Moody's immediate concern that the Liquidity Facility would be unavailable to pay interest on the notes. This results in a confirmation of the Class A Notes.

Moody's expects that the workout of the Mangusta and the KQ Warehouse loans will be finalised in the near future. The remaining workout proceeds will likely result in a repayment of the current liquidity drawings and some limited note repayments, depending on the timing of the finalisation of the workout. The other three loans in the pool are the Tiden loan, the Steigenberger Hotel loan and the Nuremberg Retail Distribution loan. For these three loans, Moody's weighted average loan to value ratio (LTV) is 121% on a whole loan basis and 109% on a securitised loan basis. The Tiden loan, which is the largest of the three loans, has the highest Moody's LTV with 137% on a whole loan basis.

Following the exercise of an extension option on the Steigenberger Hotel loan in the past, the three loans mature in October 2012 and January 2013. All loans will need Sponsor support to facilitate a refinancing, and the default risk of the loans range from high to very high. Moody's considers the refinance prospects of the Tiden loan to be lower compared to the Steigenberger Hotel and the Nuremberg Retail Distribution loans.

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.

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) delayed recovery in the lending market persisting through 2013, while remaining 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 is for a material slowdown in growth in 2012 for most of the world's largest economies fueled by fiscal consolidation efforts, household and banking sector deleveraging and persistently high unemployment levels. We expect a mild recession in the Euro area.

As the Euro area crisis continues, the rating of the structured finance notes remain exposed to the uncertainties of credit conditions in the general economy. The deteriorating creditworthiness of euro area sovereigns as well as the weakening credit profile of the global banking sector could negatively impact the ratings of the notes. Furthermore, as discussed in Moody's special report "Rating Euro Area Governments Through Extraordinary Times -- An Updated Summary," published in October 2011, Moody's is considering reintroducing individual country ceilings for some or all euro area members, which could affect further the maximum structured finance rating achievable in those countries.

MOODY'S PORTFOLIO ANALYSIS

As of the July 2012 interest payment date, the transaction's total pool balance was EUR 269 million down by 62.8% since closing due to repayments, prepayments and allocation of workout proceeds. Only 5 of the original 10 loans remain in the pool. Most of the assets of the KQ Warehouse loan and the Mangusta loan have been sold and principal recoveries have been allocated to the Notes. Moody's expects the remaining recovery proceeds to mainly cover the currently outstanding liquidity facility drawings, enforcement cost and some further principal repayment on the Mangusta loan. The remaining three loans are located in Germany and are secured by office (Tiden loan), hotel (Steigenberger Hotel loan) and warehouse properties (Nuremberg Retail Distribution loan).

The Tiden loan failed to pay the full debt service amount due on the last two interest payment dates. A partial cure of unpaid amounts were done by the junior lender. The Steigenberger Hotel loan and the Nuremberg Retail Distribution loan are on the watchlist due to upcoming maturity in October 2012.

The increased loss expectation on the Tiden loan results from (i) the non-payments of debt service due under the loan and (ii) a reduction in the Moody's value of the collateral properties. The Tiden loan did not pay the full debt service in Q1 and Q2 2012. This indicates a lower level of Sponsor support, making an enforcement of the loan security more likely. The vacancy rate for the properties securing the loan increased to 31.3% per April 2012 investor reporting compared to just 11% in July 2011. Even though some re-letting occurred compared to the peak vacancy of 44.7%, Moody's believes that the vacated properties in Mainz will be challenging to re-let. Additional leases will expire in the near term with a weighted average lease term of less than three years. Moody's expects rental income to decline further as a consequence of tenants vacating or extending at lower rates. A key driver of the value of the portfolio will be the re-letting success of the currently vacant space. Given the lower expected cash flows, Moody's has adjusted its value to EUR 63 million, which compares to an UW valuation of EUR 113 million per December 2005.

Moody's has also slightly increased its default risk assumptions on the Steigenberger Hotel loan and the Nuremberg Retail Distribution loan given the still challenging financing conditions. Both loans benefit from long leases with a single tenant on the properties securing the respective loans.

Moody's expects a very large amount of losses on the securitised portfolio, with a higher certainty on the losses related to the Mangusta loan and the KQ Warehouse loan.

RATING METHODOLOGY

The 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. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Other factors used in this rating are described in European CMBS: 2012 Central Scenarios published in February 2012.

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 24 February 2012. The last Performance Overview for this transaction was published on 18 May 2012.

In rating this transaction, Moody's used both MoRE Portfolio and MoRE Cash Flow 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 MoRE Cash Flow, 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

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

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.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a 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 two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

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.

Oliver Schmitt
Vice President - Senior Analyst
Structured Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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

Releasing Office:
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 and confirms EMEA CMBS Notes issued by Titan Europe 2006-1 p.l.c.
No Related Data.
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