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Rating Action:

Moody's downgrades the Class A Notes issued by Epic (Culzean) plc

03 Jul 2009

GBP355 million of CMBS Affected

London, 03 July 2009 -- Moody's Investors Service has today downgraded the Class A Notes issued by Epic (Culzean) plc (amount reflects the initial outstanding):

- GBP355,000,000 Class A Floating Rate Notes due October 2019 downgraded to A1, previously on 21 February 2007 assigned Aaa.

Moody's does not rate the Classes B through F Notes and the Class X Notes issued by Epic (Culzean) plc.

Today's rating action concludes the review for possible downgrade that was initiated for the Class A Notes on 08 April 2009. The rating action takes Moody's updated central scenarios into account, as described in Moody's Special Report "Moody's Updates on Its Surveillance Approach for EMEA CMBS".

1) Transaction and Portfolio Overview

Epic (Culzean) plc closed in February 2007 and represents the synthetic securitisation of initially four mortgage loans ("reference obligations") originated by Royal Bank of Scotland plc and secured by first-ranking legal mortgages over initially 17 commercial properties located across the UK. The properties were predominantly shopping centres (75% by underwriter's market value), retail (12%) and office (13%). 93% of the properties were located in London & Surrey with the remainder loacted in Birmingham.

Since closing, there have been almost no changes in the portfolio composition. One property, Victoria Place Shopping Centre, has been sold from the portfolio securing the Metro Loan. The loans are not equally contributing to the portfolio: the largest loan (Metro Loan) represents 73.4% of the current portfolio balance while the smallest loan (Prime B Loan) contributes 4.8% to current pool. The current loan Herfindahl index is 1.8, compared to 1.6 at closing. Following the sale of one property, the remaining loans are secured by 16 properties which are still predominantly shopping centres (73%). 92% of the properties are located in London & Surrey with the remainder in Birmingham.

The principal allocation in the transaction is a combination of pro-rata and sequential allocation. Pre credit event of default, all prepayments and repayments arising from disposals including release premia are allocated fully pro-rata until the principal amount outstanding of the Notes is reduced to 50% of the amount outstanding at closing. Then payments will be allocated fully sequentially. Scheduled amortisation payments and final repayments are allocated fully sequentially. Post credit event, all amounts received are allocated fully sequentially.

As of the last interest payment date ("IPD") 20 April 2009, all of the four loans in the portfolio were current and no credit event of default has occurred since closing of the transaction. One loan (Friends First Loan -- 8.2% of current pool balance) appeared on the servicer's watchlist as of the last IPD.

2) Rating Rationale

The downgrade of the Class A Notes follows a detailed re-assessment of the loan and property portfolio's credit risk. Hereby, Moody's main focus was on property value declines, term default risk, refinancing risk and the anticipated work-out timing for potentially defaulting loans. In its review, Moody's has undertaken a detailed analysis of all loans in the pool.

As outlined in more detail below, today's rating action is mainly driven by the most recent performance of the UK commercial property markets and Moody's opinion about future property value performance. Driven by, in most cases, a higher default risk assessment at the loan maturity dates, Moody's now anticipates that a very large portion of the portfolio will default over the course of the transaction term. Coupled with the negative impact of significantly reduced property values, Moody's expects a substantial amount of losses on the securitised portfolio. A large portion of the expected losses will, given the default risk profile and the anticipated work-out strategy for defaulted loans, crystallise around the middle of the transaction term.

The current subordination level of 35.1% for the Class A Notes provides protection against those losses on the underlying reference obligations. However, the likelihood of higher than expected losses on the portfolio has increased substantially, which results in today's rating action. Since closing, there has been only one property disposal resulting in prepayment proceeds of GBP 64.3 million that were allocated pro-rata to the Notes. At the same time, the loan portfolio provides for limited scheduled principal repayment over time (only the Friends First Loan had scheduled amortisation). As a result, unlike other EMEA CMBS conduit deals, the Class A Notes have not benefited from an increase in its subordination level since closing of the transaction.

3) Moody's Portfolio Analysis

Property Values. Property values across the UK have declined significantly and are expected to continue to decline at least until 2010. Moody's estimates that compared to the underwriter's ("U/W") values at closing, the values of the properties securing this transaction have declined by on aggregate 39% until the beginning of 2009 (ranging from a 32% value decline for the Prime A and B Loans to a 41% value decline for the Metro Loan). Looking ahead, Moody's anticipates further declines until 2010, resulting in on average 46% value decline compared to the U/W value at closing (ranging from a 37% decline for the Prime A Loan to a 47% decline for the Metro Loan).

Based on this property value assessment, Moody's estimates that the transaction's early-2009 weighted average ("WA") securitised loan-to-value ("LTV") ratio was 102% compared to the reported U/W LTV of 71%. Due to the further envisaged declines, the WA LTV will increase in Moody's opinion to 114% in 2010 and will only gradually recover thereafter. Based on Moody's anticipated trough values, the LTVs for the securitised loans range between 103% (Prime A and Prime B Loans) and 131% (Friends First Loan). As there is additional subordinated debt in the form of B-loans in place for the Prime A and Prime B Loans in an amount of GBP 20.5 million in total, based on estimated trough values, the overall whole loan leverage is on average 118%. Moody's has taken the anticipated property value development, including a gradual recovery from 2011 onwards, into account when analysing the default risk at loan maturity and the loss given default for each securitised loan.

Refinancing Risk. The transaction has no exposure to loans maturing in the short-term (2009 and 2010). The Metro Loan and Friends First Loan mature in 2011, while the Prime A and Prime B Loans mature in 2016. None of the loans in the pool benefits from an extension option. Since Moody's expects property values in the UK to only slowly recover from 2011 onwards, all loans will still be highly leveraged at their respective maturity dates. Consequently, in Moody's view, the default risk at maturity has increased substantially for all loans compared to the closing analysis. The refinancing risk of the Friends First Loan, which matures in April 2011, is significantly higher compared to the other loans in the pool due to its high leverage while the refinancing risks of the Prime A and Prime B Loans which mature in October 2016 are the lowest within the four loans.

Term Default Risk. The occupational markets in the UK are currently characterised by falling rents, increasing vacancy rates and higher than average tenant default rates. Based on the current lease profile, Moody's has incorporated into its analysis an allowance for deterioration in coverage ratios on the loans, in turn increasing the term default risk. The Metro Loan secured by four shopping centres as well as the Prime B Loan have already been affected by some tenant defaults, rental arrears and increasing vacancies.

Overall Default Risk. Based on its revised term and maturity default risk assessment for the securitised loans, Moody's anticipates that a very large portion of the portfolio will default over the course of the transaction term. The default risk of most loans is predominantly driven by refinancing risk. In Moody's view, the Friends First Loan has currently the highest default risk, while the Prime A and Prime B Loans have the lowest risk of defaulting.

Concentration Risk. The portfolio securitised in Epic (Culzean) plc exhibits an above average concentration in terms of property types (73% shopping centres) and property location (100% UK). In Moody's view, this limits the potential benefits from different markets performing differently over time.

Work-Out Strategy. In scenarios where a loan defaults, Moody's current expectation is that the servicer will most likely not pursue an immediate sale of the property in today's depressed market conditions. Moody's expects that, upon default, a sale of the mortgaged properties and ultimate work-out of the loan will occur at a later point in time.

Increased Portfolio Loss Exposure. Taking into account the increased default risk of the loans, the most recent performance of the UK commercial property markets, Moody's opinion about future property value performance, the most likely work-out strategies for defaulted loans and the portfolio concentration, Moody's anticipates a substantial amount of losses on the securitised portfolio. A large portion of the expected losses will, given the default risk profile and the anticipated work-out strategy for defaulted loans, crystallise around the middle of the transaction term. Moody's view of the expected loss ranking of the loans has changed since closing. Initially, the Metro Loan and Prime B Loan were of a similar credit risk from an expected loss perspective with the Friends First Loan being the weakest loan in the pool. While Moody's relative ranking for the Friends First Loan has not changed, it views the Prime A and Prime B Loans now as better than the Metro Loan from an expected loss perspective.

4) Rating Methodology

The principal methodologies used in rating and monitoring the transaction are "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 Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issue can also be found in the Credit Policy & Methodologies directory. The last Performance Overview for this transaction was published on 9 April 2009.

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
Daniel Kolter
Managing Director
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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

Moody's downgrades the Class A Notes issued by Epic (Culzean) plc
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