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Rating Action:

Moody's downgrades the Class A EMEA CMBS Notes issued by Talisman-6 Finance p.l.c.

Global Credit Research - 18 Apr 2011

EUR 825 million of CMBS affected

London, 18 April 2011 -- Moody's Investors Service has today downgraded the Class A Notes of Talisman-6 Finance p.l.c. (amounts reflect initial oustandings):

EUR825M Class A Notes, downgraded to Ba2 (sf); previously on Nov 30, 2009 Downgraded to Baa1 (sf)

Moody's does not rate the Class X, B, C, D, E and F Notes issued by Talisman-6 Finance p.l.c. Today's review action takes Moody's updated central scenarios into account, as described in Moody's Special Report "EMEA CMBS: 2011 Central Scenarios".

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 these parameters a loss expectation for the securitised pool. Based on Moody's revised assessment, the loss expectation for the pool has increased significantly since the last review in November 2009. This is mainly driven by Moody's higher expected default rates at the loans' maturity dates with 87% of the loan pool maturing between now and January 2012.

This transaction has a number of weaknesses which have contributed to today's downgrade. As mentioned, a large number of loans mature in the near term and this is coupled with a high loan-to-value (LTV) ratio on many of the loans. Therefore most of the loans are expected default on their maturity date. The largest loan in pool (38% of the pool balance), which will mature in July 2011, will be very difficult to refinance or work-out due to the large loan size (whole loan of EUR 426 million), the large underlying portfolio involved (161 properties) and the fact that Moody's expects no sponsor support for the loan since the sponsor is insolvent. Also, most of the loans are secured by property portfolios with major lease rollover exposures within the next four years which could place pressure on cash flows, values and sale or refinancing prospects. The Class A credit enhancement has not increased meaningfully since closing and coupled with the decrease in values, results in a high note-to-value on the Class A.

The transaction payment waterfall has already switched over to fully sequential which will benefit the Class A Notes as loans repay or recovery proceeds are realised. The sequential payment allocation will mitigate rating sensitivity on the Class A Notes as increased credit enhancement from loans that repay will offset the expected decrease in credit enhancement from losses that Moody's expects to be allocated to the Class F and E Notes within the next two years.

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

Talisman-6 Finance p.l.c. closed in April 2007 and represents the securitisation of initially nine commercial mortgage loans originated by ABN AMRO Bank N.V. The loans are secured by first-ranking mortgages over initially 276 commercial properties located in Germany. Since closing, with the exception of four small property disposal under the Orange Loan, there have been no changes in the portfolio composition. The remaining 272 properties in the pool are predominantly retail (49.6%, mainly retail boxes with some high street retail) and mixed-use (27%, predominantly multi-family).

The Cherry and Kiwi Loans (together 6.8% of the pool) are in payment arrears and both are in special servicing. Furthermore, the Cherry Loan was accelerated and insolvency proceeding opened in January 2010. The Mango Loan (8.4% of the pool) is in default due to an LTV covenant breach. For all three of these loans, the sale of the underlying properties is the stated work-out strategy of the servicer/special servicer.

As a result of the continued payment default under the Cherry Loan there has been a liquidity draw every quarter since the Aril 2008 IPD. The liquidity draw on the January 2011 IPD amounted to EUR 2.42 million. Following the default of the Cherry Loan, there has also been an appraisal reduction adjustment to the liquidity facility after the properties securing the Cherry loan were re-valued. The Class F Notes (not rated by Moody's), which are subject to an available funds cap mechanism, have not received interest payment or have only received partial interest payment since the January 2009 IPD.

Based on Moody's property value assessment, the weighted average securitised LTV is 116% and the overall weighted average whole loan leverage is 124%. Compared to this, the underwriter weighted average securitised LTV is 87.1% and the whole loan LTV is 92.2%. Four of the five loans where the properties have been re-valued during 2010 have an underwriter LTV in excess of 100%.

The largest loan in the portfolio, the Orange Loan (38% of the pool and EUR 426 million whole loan balance) matures in July 2011. It is secured by 161 properties which are mainly retail boxes, grocery stores and some high street shops. The vacancy rate has increased further since Moody's last review. The current vacancy rate is 21.4% compared to 15.6% in November 2009 and 7% at closing. Consequently property portfolio cash flows have deteriorated since closing as well. Furthermore 13% of the leases (by rental income) will expire by the end of 2011 with another 37% of the leases expiring during 2012 and 2013. The portfolio hasn't been re-valued since closing. Moody's whole loan LTV for this loan at maturity is 135%. In Moody's opinion this loan will default at its maturity date driven by its high leverage and large size.

The Peach Loan (14.0% of the portfolio) also matures in July 2011. It is secured by 25 mainly retail box properties. The weighted average lease term to expiry is 5.8 years and vacancy levels and cash flows have been relatively stable since closing. Moody's whole loan LTV at maturity is 105%. Moody's also expects this loan to default at its maturity date however Moody's expects some sponsor support with respect to this loan and that there is high chance that this loan could be worked with no or minimal loss.

Portfolio Loss Exposure: Moody's expects a high amount of losses on the securitised portfolio, stemming mainly from the performance and the refinancing profile of the securitised portfolio. Given the default risk profile and the anticipated work-out strategy for defaulted and potentially defaulting loans, these expected losses are likely to crystallize mainly towards the end of the transaction term. The legal final maturity of the Notes is only in October 2016 and the tail period after the longest dated loan (taking into account extension options) is almost three years therefore the special servicer will have time to work-out current and future defaulting loans in this transaction. However, in the case of the Cherry Loan which has already been accelerated and the Kiwi Loan, Moody's expects a faster work-out and expects losses to be allocated to the Class F and E Notes within the next two years.

RATING METHODOLOGY

The principal methodology used in this rating was "Update on Moody's Real Estate Analysis for CMBS Transactions in EMEA" published in June 2005.

Moody's Investors Service received and took into account one or more third party due diligence reports on the underlying assets or financial instruments in this transaction and the due diligence reports had a neutral impact on the rating.

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 30th November 2009. The last Performance Overview for this transaction was published on 24th March 2011.

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).

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.

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

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London
Viola Karoly
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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Moody's downgrades the Class A EMEA CMBS Notes issued by Talisman-6 Finance p.l.c.
No Related Data.
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