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Rating Action:

Moody's downgrades the Class A2 CMBS Notes issued by Perseus (European Loan Conduit No. 22) plc

22 Sep 2009

GBP 194 Million of CMBS affected

London, 22 September 2009 -- Moody's Investors Service has today downgraded the following class of Notes issued by Perseus (European Loan Conduit No. 22) plc (amounts reflect initial outstandings):

GBP194M Class A2 Commercial Mortgage Backed Floating Rate Notes due 2014, Downgraded to Aa3; previously on Sep 15, 2009 Aaa Placed Under Review for Possible Downgrade

At the same time, Moody's has affirmed the Aaa rating of the Class A1 Notes Issued by Perseus (European Loan Conduit No. 22) plc. Moody's does not rate the Class A3, Class B, Class C and Class D Notes issued by European Loan Conduit No. 22 p.l.c.

Today's rating action concludes the review for possible downgrade that was initiated for the Class A2 Notes on the 15 September 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

Perseus (European Loan Conduit No. 22) plc represents the securitisation of five commercial mortgage loans originated by Morgan Stanley Bank International Limited that are secured by first ranking mortgages on 368 mainly office and retail properties located across the UK.

Since closing, there have been no changes in the portfolio composition except for minor prepayments on the Mapeley Columbus Loan and the Major Balle Loan due to disposals of properties. The loans are not equally contributing to the portfolio: the largest loan (the Mapeley Columbus Loan) accounts for approximately 59% of the pool's principal balance, while the smallest loan (the Ladysmith Shopping Centre Loan) represents 6%. The current loan Herfindahl index is 2.5, compared 2.7 to closing. The loans are secured by 368 office (52%) and retail (48%) properties. 41% of the properties are located in London and the South East and 15% in South West England.

To date, the sequential payment trigger has not been breached. The proceeds from prepayments and balloon repayments are allocated to the notes on a modified pro-rata basis, based on certain loan buckets. The largest loan in the pool (Mapeley Columbus - 59% of current pool) will be allocated pro-rata between the Class A1, Class A2, Class A3 and Class B Notes only while the second largest loan (Columbus Court -- 14% of current pool) will be allocated pro-rata between the Class A1 and Class A2 Notes only. In Moody's view the repayment allocation of the second largest loan is positive for the Class A2 Notes as this reduces the amount of senior ranking Class A1 Notes and also reduces Class A2 Notes without decreasing the absolute amount of available subordination.

2) Rating Rationale

The downgrade of the Class A2 Notes follows a detailed re-assessment of the loans 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 reassessed each loan in the transaction.

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 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 considerable amount of losses on the securitised portfolio. Those expected losses will, given the back-loaded default risk profile and the anticipated work-out strategy for defaulted loans, crystallise only towards the end of the transaction term.

The current subordination levels for Moody's rated classes of 60% and 22% for the Class A1 and the Class A2 Notes, respectively provide protection against those expected losses. However, the likelihood of higher than expected losses on the portfolio has increased substantially, which results in today's rating action on the Class A2 Notes.

Since closing no loan has prepaid. At the same time, the loan portfolio only provides for limited scheduled principal repayment over time. As a result, unlike other large multi-borrower transactions ("EMEA CMBS conduit deals"), the Class A1 and the Class A2 Notes do not benefit from a meaningful increase in subordination levels since closing.

In addition, the Class A2 Notes are subordinated to the Class A1 Notes in the capital structure. Due to this additional leverage, the higher portfolio risk assessment has a relatively bigger impact on the expected loss of the Class A2 Notes than on the expected loss of the Class A1 Notes.

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 19% until the beginning of 2009 (ranging from a 12% value decrease for the Mapeley Columbus Loan to a 38% decline for the Yate Loan). Looking ahead, Moody's anticipates further declines until 2010, resulting in a 25% value decline compared to the U/W value at closing (ranging from 17% decline for the Mapeley Columbus Loan to 47% decline for the Yate 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 69.1% compared to the reported U/W LTV of 57.4%. Due to the further envisaged declines, the WA LTV will increase in Moody's opinion to 75.7% in 2010 and will only gradually recover thereafter. Based on Moody's anticipated trough values, the LTVs for the securitised loans range between 66.5% (Mapeley Columbus Loan) and 109.9% (Yate Loan). As all loans have significant additional debt in the form of B-loans (amounting to GBP 244.9 million), the overall whole loan leverage is on average 112%, based on estimated trough values.

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 substantial exposure to loans maturing in the short-term with 28% of the current portfolio maturing in 2010. The remaining balance matures in 2012. As Moody's expects property values in the UK to only slowly recover from 2011 onwards, all loans will be still highly leveraged at their respective maturity dates, also taking into account the B-loans. Consequently, in Moody's view, for most of the loans, the default risk at maturity has increased substantially compared to the closing analysis. The smallest loan, the Ladysmith Shopping Centre Loan (6% of current pool) is the first to mature in July 2010 followed by the Columbus Court Loan (14% of current pool) and Major Belle Loan (8% of current pool) in October 2010. Based on Moody's anticipated value declines, all loans will be exposed to high loan-to--value ratios at their respective refinancing dates. For the Ladysmith Shopping Centre Loan and the Major Belle Loan, Moody's has assumed a high likelihood of the loans defaulting at their maturity dates whereas for the Columbus Court Loan, Moody's has assumed that there is a high likelihood of the loan being extended until 2012. In Moody's view, the servicer may favor a loan extension in 2010 as this loan generates stable rental cash flows through the sole tenant, Credit Suisse (Aa1, P-1), on a long term lease with an expiry in November 2024.

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. Taking into account the lease profile of the respective loans, the Yate Loan, the Major Belle Loan, and the Ladysmith Loan could be in Moody's view especially exposed to weakening occupational markets. The balance of the portfolio benefits from long-dated leases to strong credit tenants. Based on the current lease profile, Moody's has incorporated into its analysis an allowance for deterioration in coverage ratios on some of the loans.

Overall Default Risk. Based on its revised term and maturity default risk assessment for the securitised loans, Moody's anticipates that a large portion of the portfolio will default over the course of the transaction term. The default risk of all loans is predominantly driven by refinancing risk. In Moody's view, the Yate Loan has currently the highest default risk, while the largest loan in the portfolio (Mapeley Columbus) has the lowest risk of defaulting.

Concentration Risk. The portfolio securitised in Perseus (European Loan Conduit No. 22) plc exhibits above average concentration in terms of property types (52.6% office) and property location (100% UK and 41% London and the South East). 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. 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.

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 and the most likely work-out stratergy for defaulted loans, Moody's anticipates a substantial amount of losses on the securitised portfolio, which will, given the back-loaded default risk profile and the anticipated work-out strategy for defaulted loans, crystallise only towards the end of the transaction term.

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 are available on 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 26 August 2009.

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
Daniel Kolter
Managing Director
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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

Moody's downgrades the Class A2 CMBS Notes issued by Perseus (European Loan Conduit No. 22) plc
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