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 [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).
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.
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JOURNALISTS: 44 20 7772 5456
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Moody's downgrades the Class A-2, Class B, Class C and Class D CMBS Notes issued by Titan Europe 2007-2 Limited
