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Rating Action:

Moody's downgrades the Class A-2, Class B, Class C and Class D CMBS Notes issued by Titan Europe 2007-2 Limited

15 Apr 2011

EUR 622.3 million of Notes affected

London, 15 April 2011 -- Moody's Investors Service has today downgraded the Class A-2, Class B, Class C and Class D Notes issued by Titan Europe 2007-2 Limited (amount reflects initial outstandings):

....EUR243M Class A2 Notes, Downgraded to Baa3 (sf); previously on Mar 2, 2011 Aa1 (sf) Placed Under Review for Possible Downgrade

....EUR164.6M Class B Notes, Downgraded to Caa3 (sf); previously on Oct 15, 2009 Downgraded to Baa2 (sf)

....EUR122.9M Class C Notes, Downgraded to Ca (sf); previously on Oct 15, 2009 Downgraded to B2 (sf)

....EUR91.8M Class D Notes, Downgraded to Ca (sf); previously on Oct 15, 2009 Downgraded to Caa2 (sf)

The current Aaa (sf) rating on the Class A1 Notes is still commensurate with the credit risk of the portfolio.

The Class A1 and Class A2 Notes were previously placed on review for possible downgrade due to Moody's initial assessment of the transaction under Moody's methodology "Global Structured Finance Operational Risk Guidelines: Moody's Approach to Analyzing Performance Disruption Risk" published on March 2, 2011. Moody's operational risk guidelines stipulate the highest achievable rating if certain operational risk factors are present which could disrupt payments to investors. In the case of Titan Europe 2007-2 Limited, the operational risk results from having an unrated servicer combined with uncertainty about the access to liquidity (in form of servicing advances) by the cash manager in case of servicer's default. A single-A (sf) rating is the maximum achievable rating if the transaction's cash manager is investment-grade rated (like in this transaction) and the payment disruption would exceed two note interest payment dates. The Class A2 Notes are therefore no longer on review for downgrade due to operational risk since the rating is now below the rating-cap that could be imposed due to operational risk. However, the Class A1 Notes which are rated Aaa (sf) remain on review for possible downgrade due to operational risk concerns.

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, the loss expectation for the pool has increased since the last review in October 2009.

The Aaa (sf) rating on the Class A1 is mainly driven by the currently high credit enhancement level (46%) and the fully sequential payment allocation to the Notes.

The rating downgrade of the Class A2, Class B, Class C and Class D Notes is due to Moody's increased refinancing default risk and loss assessment for the four largest loans which represent nearly 80% of the pool and in particular for the MPC loan, the largest in the pool.

We believe the portfolio re-assessment is justified (i) by the continuing negative performance of the MPC loan, the Urbis loan and the Portier loan and (ii) the restructuring of the Christie loan which, albeit a positive, does not significantly improve our assessment of the loan's credit risk.

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 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; 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 EUR 1,425 million down from EUR 1,669 million since closing mostly due to the prepayment of the Beau Rivage loan and limited amortisation on most loans.

The largest loan is the MPC Loan (30.3% of the current pool). It is secured by a portfolio of currently 93 office properties located across the Netherlands. The reported current interest coverage ratio ("ICR") of 1.22 x (as of January 2010) is significantly lower than at closing. This is mainly due to the increase in vacancy across the portfolio. Since closing, the Sponsor has only managed to sell six assets whereas its original plan was to dispose of all the assets during the loan term. Based on the most recent underwriter (UW) value of EUR 606 million for the portfolio, the loan-to-value (LTV) for the whole loan excluding mezzanine is 143%. As there is no LTV covenant, the loan is not in default nor in special servicing. Our assessment of the property value is EUR 500 million considering (i) the continuing rental income deterioration since closing and (ii) the mixed quality of the portfolio. This implies a 173% LTV at the extended maturity in January 2012. Given its size, its LTV and the mixed quality of the property portfolio, we expect a default at maturity and a long and costly subsequent work out process. As a result, based on a Moody's LTV on the securitised loan of 157%, we expect a very high amount of losses on that loan.

The second largest loan is the Christie loan (23.3% of the current pool). The loan is secured by four retail parks in Germany. The ICR is strong at 1.78x. Net operating income has been stable since closing and the rollover risk is limited going forward. Based on the March 2010 UW value, the LTV for the loan excluding mezzanine was 84.4% as of January 2011. The loan was transferred in special servicing in April 2010 when it did not repay at its extended maturity. A restructuring of the loan has now been agreed between the borrowers and the lenders. Key restructuring terms include: (i) an extension of the loan maturity to April 2013, (ii) a reduction of the B-loan amount to EUR 26 million and (iii) the application of all free cash flows as well property disposal proceeds in repayment of the securitized portion of the loan. Based on our assessment of the value, the LTV for that loan excluding the mezzanine will be 99% at maturity. Consequently, we believe there is a substantial risk that the loan will default at maturity. However, it is likely that the Sponsor will try to progressively sell the assets before the extended maturity. Based on our current value assessment and a resulting LTV of 94.9% on the securitised loan, we expect a substantial amount of losses on that loan.

The third largest loan is the Urbis Loan (16.9% of the pool). The loan is secured by a mixed use portfolio of properties located across Germany. The portfolio currently consists of 58 assets down from 85 at closing. The loan is currently on the Servicer's watchlist because of a debt service coverage ratio (DSCR) covenant breach. The current DSCR on the whole loan is at 0.78. Occupancy has remained low since closing despite limited improvement. Given the high level of vacancy, the mixed quality of the portfolio and the significant rollover risk, we have revised our value assessment. We believe the LTV of the whole loan at maturity will be at 144.2%. As a result, we expect a default at maturity and a subsequent long and costly work-out process. As a result, based on a Moody's LTV on the securitised loan of 120.5%, we expect a very high amount of losses on that loan.

The Portier Loan (9.0% of the pool) has been in special servicing since September 2008 following the loan sponsor's filling for insolvency and the subsequent event of default. The loan is secured by a multifamily portfolio located throughout Germany. According to Capita, the marketing process of the portfolio has been concluded and bids reviewed. Final due diligence is currently taking place. However, we were not communicated with an exact timeline for completion of the work out. Based on a Moody's LTV on the securitised loan of 93.8%, we expect a substantial amount of losses on that loan.

Portfolio Loss Exposure: Moody's expects a very high amount of losses on the securitised portfolio, mainly stemming from the four largest loans. As the sequential payment trigger was hit, the risk of potential losses on all the subordinated classes has increased resulting in the today's rating downgrade for those classes of Notes.

RATING METHODOLOGY

The principal methodology used in this rating was "Update on Moody's Real Estate Analysis for CMBS Transaction in EMEA" published in 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.

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 15 October 2009. The last Performance Overview for this transaction was published on 17 December 2010.

For updated monitoring information, please contact monitor.cmbs@moodys.com. 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).

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, 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 a credit rating.

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 www.moodys.com/disclosures on our website for further information.

Moody's adopts all necessary measures so that the information it uses in assigning a credit 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.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service 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 the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

London
Raphael Smadja
Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Christophe de Noaillat
Senior Vice President
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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 the Class A-2, Class B, Class C and Class D CMBS Notes issued by Titan Europe 2007-2 Limited
No Related Data.
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