GBP 435.85 Million of Debt Securities Affected
London, 04 July 2011 -- Moody's Investors Service has today downgraded and maintained on review
for possible downgrade the following class of Notes issued by Titan Europe
2007-1 (NHP) Limited (amount reflecting initial outstanding):
GBP435.85M Class A Notes, Downgraded to Ba1 (sf) and Remains
On Review for Possible Downgrade; previously on May 25, 2011
A1 (sf) Placed Under Review for Possible Downgrade
Moody's does not rate the Class X, Class B, Class C,
Class D and Class E Notes.
RATINGS RATIONALE
The key parameters in Moody's analysis are the default probability of
the securitised loan (both during the term and at maturity) as well as
Moody's value assessment for the portfolio of properties securing the
loan. Moody's derives from those parameters a loss expectation
for the securitised pool.
Today's rating action is due to an increase in the expected loss for the
single loan in the pool as a result of (i) an updated estimate of the
portfolio's value (ii) significant uncertainties surrounding the
long-term sustainable rental cash flows from the underlying portfolio
(iii) the increased likelihood of cash flow shortfalls at the transaction
level that may require drawings under the servicer advance mechanism and
(iv) Moody's revised interpretation of the ranking of the Forward
Swap, which is now assumed to rank ahead of principal payments to
Class A Noteholders.
Titan Europe 2007-1 (NHP) Limited represents a true-sale
securitisation of a GBP 610 million Senior A Loan extended to The Libra
Borrower, and secured by a portfolio of 297 care home properties
located across the UK. Additionally, a GBP 534 million Junior
B Loan was provided to The Libra Borrower that has not been securitised
in this transaction, but is secured by the same portfolio.
The Principal Tenant (Southern Cross Healthcare Group PLC) leases 86.7%
of the secured portfolio. Due to its critical financial position,
the Principal Tenant implemented a four-month deferral of 30%
of the current rent payable with effect from 1 June 2011 until 30 September
2011 across all its approximately 750 care homes. On 16 June 2011,
the Principal Tenant announced that it would work with all its landlords
including the Libra Borrower, towards a consensual solution to its
current financial problems which will be delivered over the next four
months. This process will be overseen by a Restructuring Committee
made up of representatives of the Landlords' Committee and the Principal
Tenant.
Moody's acknowledges the challenge of valuation amid the significant
uncertainties overshadowing the Principal Tenant and the care home industry.
Nonetheless, Moody's estimates the securitized senior loan
LTV at 108%, deteriorating to 130% after incorporating
potential Forward Swap breakage costs of GBP 124 million as of April 2011.
The corresponding Class A note-to-value ratio is estimated
at 72%, deteriorating to 94% after incorporating the
above mentioned potential Forward Swap breakage costs.
The profitability of each individual care home is important in determining
sustainable rent levels for an operator, and ultimately the value
of the care home. Moody's considered the profitability of
each individual care home in arriving at its updated estimate of the portfolio's
value. Market research suggests that Rent Cover (rent as a proportion
of profit) averages 1.55x for nursing homes across the UK.
Based on the December 2010 UW market value of GBP795.9 million
(adopting purchasers' costs of 5.75%), approximately
40% of Southern Cross-operated care homes had a 2010 Rent
Cover of less than 1.55x, while 18% had less than
1.15x.
The ranking of Forward Swap payments relative to Class A Note payments
is to be deduced from several complex provisions in the transaction documents.
Moody's previously interpreted these provisions to mean that the
Forward Swap is fully subordinated to the Class A Notes. However,
following further investigation, we now consider that principal
payments to Class A Noteholders will, in effect, be subordinated
to payments due under the Forward Swap (other than termination payments
resulting from the swap counterparty's default) in respect of rental
income and property disposal proceeds. This is because, even
though the Class A Notes rank above the Forward Swap in the Issuer-level
waterfall, the amount of principal due and payable to Class A Noteholders
is determined, in part, by reference to the amount that is
allocated to principal repayment of the Senior A Loan pursuant to the
Intercreditor waterfall, under which swap payments rank first.
A material consequence of this is that any property disposal proceeds
will be applied towards Forward Swap payments in priority to repaying
the Class A Notes. Such Forward Swap payments will include any
partial termination payments resulting from prepayment of the Whole Loan,
which is the aggregate of the Senior A Loan and the Junior B Loan.
However, we believe that certain other principal receipts --
such as the principal component of any payment received in connection
with a sale of the Senior A Loan -- will be applied to repay the
Class A Notes in priority to the Forward Swap. Moreover,
notwithstanding the senior ranking of the Forward Swap in the Intercreditor
waterfall, we continue to assume that interest on Class A Notes
will be paid in priority to the Forward Swap. This is because any
amounts allocated to the Forward Swap under the Intercreditor waterfall
are required to be paid into the Collection Account for application according
to the Issuer-level waterfall. Moody's will reissue
its Pre-Sale Report published on 15 May 2007 to reflect our updated
position regarding the priority of payments between the Forward Swap and
the Class A Notes.
Moody's will conclude its transaction review once it has greater clarity
around the ongoing restructuring discussions between the Principal Tenant,
the Libra Borrower, and the Special Servicer.
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. "Update on Moody's Real
Estate Analysis for CMBS Transaction in EMEA", published June
2005 was also used in this rating. Please see the Credit Policy
page on www.moodys.com for a copy of this methodology.
The updated assessment is a result of Moody's on-going surveillance
of commercial mortgage backed securities (CMBS) transactions. Moody's
prior announcement is summarised in a Press Release dated 25 May 2011.
Moody's published its last Performance Overview for this transaction
on 31 May 2011.
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).
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, 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
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.
London
Ramzi Kattan
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
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 Investors Service Ltd.
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JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades and maintains on review for possible downgrade the Class A CMBS Notes issued by Titan Europe 2007-1 (NHP) Limited