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Rating Action:

Moody's downgrades the Class A CMBS Notes issued by Talisman-4 Finance plc

Global Credit Research - 25 May 2010

EUR 570 Million of EMEA CMBS affected

Frankfurt, May 25, 2010 -- Moody's Investors Service has today downgraded the Class A Notes issued by Talisman-4 Finance plc (amount reflects initial outstandings):

EUR570M Class A Commercial Mortgage Backed Floating Rate Notes due 2015, Downgraded to Aa3; previously on May 19, 2010 Aaa Placed On Review for Possible Downgrade

Moody's has not assigned ratings to the Class X, Class B, Class C, Class D, Class E, Class F and Class G Notes issued by Talisman-4 Finance plc.

1) Transaction Overview and Performance Update

This transaction represents the securitisation of initially eight commercial mortgage loans originated by ABN AMRO Bank N.V. (now Royal Bank of Scotland plc). The Loans were initially secured by first ranking legal mortgages on 98 commercial properties as well as 11 residential properties and 20 mixed-use properties located in Germany. By gross rental income, the portfolio comprised 41.2% office properties, 33.8% retail properties, 7.7% nursing homes, 6.2% residential and multifamily properties, 5.8% logistics properties and 5.3% other.

Since closing, two loans have fully prepaid. As of April 2010, there were six Loans secured by 51 properties remaining in the pool with an outstanding balance of approximately EUR 454.4 million. The remaining loans are not equally contributing to the portfolio. The largest loan (DT-12 Loan) represents 38.1% of the current portfolio balance, while the smallest loan (DC Properties Loan) represents 3.7%. The DT-12 Loan and the Valentine Loan (16.9%) are cross-collateralised. The current Loan Herfindahl index is 4.1 compared to 5.1 at closing. According to the investor report as of April 2010, the portfolio comprises 48.0% office properties and 41.1% mixed-use properties, 6.4% multifamily properties, 4.2% logistics properties and 0.3% other properties.

As of April 2010, all loans in the portfolio were current. However, following the re-valuation of the property securing the DC Properties Loan, this Loan has breached the LTV covenant and is now in default. The Barthonia Loan (22.7% of the current pool) is currently in breach of its ICR Cash Trap trigger and is on the servicer's watchlist. The transaction has not yet breached its sequential payment trigger.

2) Rating Rationale

Today's rating action for the Class A Notes follows a detailed re-assessment of the loan and property portfolio's credit risk that has been prompted by (i) the deteriorating performance of the second largest loan, the Barthonia Loan, which generates lower than initially expected rental cash flows and (ii) the higher than expected value decline of the property securing the DC Properties Loan as indicated by the latest re-valuation and the subsequent default of the loan. Moody's main focus was on property value declines, term default risk, refinancing risk and the anticipated work-out timing for potentially defaulting loans.

As outlined in more detail below, today's rating action is mainly driven by:

(i) The worse than expected performance of the second largest loan;

(ii) The most recent performance of the German commercial property markets;

(iii) Moody's opinion about future property market performance; and

(iv) The adverse refinancing profile of the transaction.

Moody's anticipates that a substantial portion of the portfolio will default over the course of the transaction term. Coupled with the negative impact of reduced property values, Moody's expects a considerable amount of losses on the securitised portfolio. Those expected losses will, given the anticipated work-out strategy for defaulted loans, crystallise towards the end of the transaction term considering that all of the loans except for the DIV Dandelion Loan (11.8% of the current pool) mature in 2013 with the legal final maturity of the Notes only two years later in 2015.

The current subordination level for the Moody's rated Class A Notes provides protection against those expected losses. However, the likelihood of higher than expected losses has increased as well, thereby resulting in today's rating action.

Since closing, two loans amounting to 39.4% of the initial Loan portfolio fully prepaid. The prepayment proceeds were applied to the Notes on a modified pro-rata basis, i.e. 50% sequential and 50% pro rata between all Note classes. The loan portfolio provides for limited scheduled amortisation over time. As a result, the credit enhancement level of the Class A Notes increased from 22.9% at closing to 30.3%.

3) Moody's Portfolio Analysis

Property Values. Property values across German markets have declined until the beginning of 2010. Moody's expects them to remain flat and in some instances continue to decline until early 2011. Compared to the underwriter's ("U/W") values at closing, Moody's estimates that the values of the properties securing this transaction will decline on average by approximately 19.4% until the trough in 2010 (ranging from a 28.1% decline for the property securing the DC Properties Loan to a 13.6% decline for the portfolio securing the DT-12 Loan). Looking ahead, Moody's anticipates the values to remain relatively constant until maturity of the loans. Moody's has taken this property value assessment into account when assessing the loans' refinancing risk and potential loss given default.

Based on the above property value assessment, Moody's estimates that the current transaction's weighted average ("WA") securitised LTV is 96.4% compared to the reported U/W LTV of 79.4%. Based on Moody's values, the LTVs for the securitised loans range between 88.7% (Valentine Loan) and 113.9% (DIV Dandelion Loan). As the Barthonia Loan has additional debt in the form of a B-Loan (amounting to EUR 13.9 million), based on estimated Moody's values, the overall Whole Loan leverage is on average 99.5%.

Refinancing Risk. The transaction's exposure to loans maturing in the short term is considerable. 11.8% of the pool matures in April 2011 (DIV Dandelion Loan). The remaining loans mature in 2013. As Moody's expects property values in Continental Europe to only slowly recover from 2011 onwards, all loans will be still highly leveraged at their respective maturity dates. Consequently, in Moody's view, for all of the loans, the default risk at maturity has increased substantially compared to the closing analysis.

Term Default Risk. The occupational markets in Germany are currently characterised by falling rents, increasing vacancy rates and higher than average tenant default rates. In addition, two loans in the pool are secured by properties which are subject to significant lease rollover risk over the next few years (Valentine Loan and Barthonia Loan, which represent on aggregate 39.6% of the pool). These loans are especially exposed to weakening occupational markets. Moody's has incorporated into its analysis an allowance for deterioration in coverage ratios and weakening tenant quality, in turn increasing the term default risk assumption for these loans.

Barthonia Loan. The loan represents the senior part of an initially seven year loan, which pays a floating interest rate, hedged with a swap at borrower-level. The scheduled amortisation of 1.25% per year during the loan term will be allocated to the junior loan tranche only, i.e. the securitised loan portion will not amortise over the loan term. The property securing the loan is a mixed use asset (retail, office and residential) located within a residential area of Cologne, Germany. The current vacancy rate of the property is 11.5% compared to no vacancies at closing. As of the latest investor report, the net operating income decreased from EUR 9.1 million at closing to EUR 8.3 million. The latest reported ICR is at 1.32x, which is below the cash trap trigger level of 1.40x. Therefore, surplus on the rent account is currently trapped and the loan is on the servicer's watchlist. The rental cash flow performance is below Moody's expectations at closing. In addition, as mentioned above, the loan is subject to lease rollover risk over the next few years. Moody's has incorporated a higher than initially expected default risk for this loan into its current analysis.

Overall Default Risk. Based on its revised term and maturity default risk assessment for the securitised loans, Moody's anticipates that a substantial portion of the portfolio will default over the course of the transaction term. The default risk of the loans is predominantly driven by refinancing risk. In Moody's view, the DIV Dandelion Loan and the Barthonia Loan have the highest default risk, while the G-24 Loan (6.8% of the current portfolio) has the lowest risk of defaulting.

Concentration Risk. The portfolio securitised in this transaction exhibits an above average concentration in terms of property types and property location.

Work-Out Strategy. In scenarios where a loan defaults, Moody's current expectation is that the special servicer will most likely not pursue an immediate fire sale of the property in today's market conditions. Therefore, Moody's has assumed that in most cases, upon default, a sale of the mortgaged properties and ultimate work-out of the loan will occur at a later point in time, but taking into account the legal final maturity date of the Notes in 2015.

Increased Portfolio Loss Exposure. Taking into account the increased default risk of the loans, the most recent performance of the commercial property markets in Germany, Moody's opinion about future property value performance and the most likely work-out strategies for defaulted loans, Moody's anticipates a considerable amount of losses on the securitised portfolio, which will, given the in most cases back-loaded default risk profile (refinancing risk) of the loans and the anticipated work-out strategy for potentially defaulting loans, crystallise only towards the end of the transaction term.

4) Rating Methodology

The principal methodologies used in rating and monitoring the transaction were "Update on Moody's Real Estate Analysis for CMBS Transaction in EMEA" June 2005 and "Moody's Updates on its Surveillance Approach for EMEA CMBS" March 2009, which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website. The last Performance Overview for this transaction was published on 15 February 2010.

Further information on Moody's analysis of this transaction is available on www.moodys.com. In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.

For updated monitoring information, please contact monitor.cmbs@moodys.com." To obtain a copy of Moody's New Issue 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).

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

Frankfurt
Oliver Moldenhauer
Vice President - Senior Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades the Class A CMBS Notes issued by Talisman-4 Finance plc
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