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Rating Action:

Moody's downgrades one class of EMEA CMBS Notes issued by Titan Europe 2007-1 (NHP) Limited

12 Feb 2013

London, 12 February 2013 -- Moody's Investors Service has today downgraded the following class of notes issued by Titan Europe 2007-1 (NHP) Limited (amount reflecting initial outstanding):

....GBP435.85M Class A Commercial Mortgage Backed Floating Rate Notes due 2017 Certificate, Downgraded to Ba3 (sf); previously on Jun 19, 2012 Confirmed at Ba1 (sf)

Moody's does not rate the Class B, Class C, Class D, Class E and the Class X Notes.

RATINGS RATIONALE

Today's downgrade reflects Moody's increased loss expectation for the pool since its last review in June 2012 largely due to a 15% drop in the value of the underlying nursing homes. The collateral value decline worsened the Moody's Class A note-to-value to 77% from 66%.

The performance of the underlying care homes presented during a Noteholder meeting on 1 February 2013 was somewhat worse than Moody's expected, and explains the drop in value. Nonetheless, the operations of the underlying care homes appear to have now stabilised, with a three year business plan in place that includes substantial investments of GBP 84 million until 2015 financed by the diversion of cash flows away from the securitisation and the swap counterparty to the operating company ("HC-One"). Moody's is concerned that not all the significant investment in infrastructure, capital expenditure and care standards will translate into value preservation or creation.

In Moody's view, the business plan looks convincing and achievable. However, the Class A Noteholders remain exposed to material execution and exit risk with limited influence over other transaction parties that control the timing and path of any exit and whose obligations and motivations may not necessarily be completely aligned. The chances of a successful exit via a sale or refinance are improved by the quasi corporate nature of the collateral that is likely to attract a wide range of investors and lenders (with a capital markets exit also a possibility). Execution risk is mainly related to uncertainty surrounding the HC-One business plan, but also heavily influenced by the prospects for the care home industry (including the outcome of the on-going debate about funding long-term care in the UK). With over 80% of HC-One's residents publicly funded, revenues will be sensitive to the outcome of the April 2013 Local Authority weekly fee settlements. New government regulation that imposes strict financial criteria for care home operators may negatively impact ultimate recoveries.

Moody's now gives benefit to the value of the WholeCo (i.e. the value of the operating company "opco" combined with the property company "propco") given HC-One forms part of the security, and because for the first time there is sufficient information on the operations of underlying care homes.

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, 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 for the world's largest economies is for only a gradual strengthening in growth over the coming two years. Fiscal consolidation and volatility in financial markets will continue to weigh on business and consumer confidence, while heightened uncertainty hampers spending, hiring and investment decisions. We expect no growth in the Euro area in 2013.

MOODY'S PORTFOLIO ANALYSIS

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 around 300 care homes 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. HC-One Limited, a recently formed wholly-owned Subsidiary of the Libra Borrower that was created after the collapse of Southern Cross, operates 232 care homes. A mixture of third party tenants operate the remaining 62 care homes.

Moody's expects a large amount of losses on the securitised portfolio. Given the default risk profile and the anticipated work-out strategy (with a sale or refinance likely in 2015/2016), the expected losses are likely to crystallise only towards the end of the transaction term. Moody's included in its analysis a GBP 60 million estimate of prior ranking claims to account for potential liabilities arising from swap breakage costs or outstanding servicer advances.

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 19 June 2012. The last Performance Overview for this transaction was published on 15 November 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

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.

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

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Ramzi Kattan
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Oliver Moldenhauer
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades one class of EMEA CMBS Notes issued by Titan Europe 2007-1 (NHP) Limited
No Related Data.
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