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Rating Action:

Moody's downgrades two classes of CMBS Notes issued by Deco Series 2005-Pan Europe 1 p.l.c.

24 Mar 2011

Ratings of the Class B, C and D Notes affirmed

London, 24 March 2011 -- Moody's Investors Service has today downgraded the following classes of Notes issued by Deco Series 2005-Pan Europe 1 p.l.c. (amounts reflect initial outstandings):

....EUR50M Class E Notes, Downgraded to Baa3 (sf); previously on Sep 18, 2009 Downgraded to A3 (sf)

....EUR40M Class F Notes, Downgraded to Caa3 (sf); previously on Sep 18, 2009 Downgraded to B2 (sf)

At the same time, Moody's Investors Service has affirmed the Aaa (sf) rating of Class B and C Notes and the Aa3 (sf) rating of Class D Notes issued by Deco Series 2005-Pan Europe 1 p.l.c. Today's rating 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 our analysis are the default probability of the securitised loans (both during the term and at maturity) as well as our value assessment for the properties securing these loans. We derive from those parameters a loss expectation for the securitised pool.

Based on Moody's revised assessment of these parameters, the loss expectation for the remaining pool, which now consists of three loans (compared to seven at closing) has increased significantly since the last review in September 2009.

The rating affirmation of the Class B, C and D Notes is mainly driven by (i) current credit enhancement levels and (ii) low note-to-value (NTV) level.

The downgrade on Class E, and F Notes is mainly caused by (i) Moody's increased refinancing default risk and loss assessment for the remaining loans in the pool; and (ii) lease rollover risk affecting the Deutsche Post and Gewerbepark loan.

The overall default probability of the remaining underlying loans as assessed by Moody's has increased compared to the last review due to a re-assessment of the refinancing risk. Moody's weighted average whole loan-to-value (LTV) ratio is considerable at 115%. All three remaining loans mature in 2012 with no existing options to extend. As Moody's expects limited increase in commercial property values in the next two years, these loans will be highly leveraged at their respective maturity dates in 2012.

The ratings of the Classes of Notes are sensitive to the performance of the Deutsche Post and Gewerbepark loan and the success of the borrower to renew upcoming lease expiries or re-let vacated areas. Deterioration of rental cash flows would lead to higher default probability during the term and a lower property value. In addition, a more adverse lease profile will further increase the refinancing risk.

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.

MOODYS PORTFOLIO ANALYSIS

As of the January 2011 interest payment date (IPD), the transaction's total pool balance was EUR107.8 million down by 88% since closing. This is mainly due to the repayment of the largest loan at closing in April 2007 (Centro loan). As three more loans prepaid in full, three loans remain which are secured by 40 properties and mainly in use as office (44%) and multifamily (33%). All three loans mature in 2012.

Whereas the prepayment of any other loan would result in a 50/50% allocation of proceeds, the prepayment proceeds of the Centro loan were applied 75% sequential and 25% pro-rata to the Notes. The transaction structure provides for the allocation of amortisation and prepayment proceeds to the Notes switching from currently modified pro-rata to fully sequential subject to certain triggers that have not been hit to date. A switch will occur once, amongst others, once the outstanding Notes balance has been reduced to 10% of the initial Note balance at closing date (i.e. either one of outstanding loans needs to repay).

As of the last IPD, all of the remaining three loans in the portfolio were current and none of the loans are in special servicing or have defaulted since closing. None of the loans are on the servicer's watch list.

The largest loan is the Deutsche Post loan (44% of the pool) which is secured by an office portfolio located in Germany (Berlin and Cologne). The portfolio consist of seven properties which are let to approximately 138 tenants with the top-3 contributing approximately 76% of total rental income. The current reported whole loan debt service coverage ratio (DSCR) is 1.22x (as of January 2011) with the surplus cash flow being trapped as the largest tenant doesn't comply with the rating requirements set at closing. The current balance EUR1.2 million is placed in a reserve account for any future loan and property payment requirements. The lease rollover for this loan is modest evidenced by a weighted average (WA) lease to expiry or break of 4.2 years. Based on the underwriter's (U/W) market value as per 2005 valuation the whole and A-Loan LTV are 78% and 75% respectively. Moody's current property value of EUR45.8 million, representing a whole loan LTV of 107%, considers the (i) secondary quality of the properties; and (ii) some potential rental income deterioration resulting from the existing lease expiry profile (approximately 15% of the rental income expires or breaks in the next three years). Moody's has given only limited benefit to the current cash trapping.

The AWOBAG loan (35% of the pool) which matures in July 2012 is secured by a multifamily portfolio located in Kiel (43% by rental income) and Potsdam (57% by rental income), Germany. Based on the valuation as of closing date, the current U/W whole loan and securitized LTV are 83% and 78% respectively. The loan performs inline with Moody's expectations as the whole loan projected DSCR is 1.55x as per January 2011 IPD. The vacancy of the total portfolio remains modest at 7.2% (by area). However, the Kiel portfolio with a vacancy level of approximately 12% clearly underperforms compared to the Potsdam portfolio (2.5%) possibly due to some ongoing refurbishments. The properties of the Kiel and Potsdam portfolios are considered by Moody's as below average and average quality respectively. Given the Moody's whole LTV ratio of 115%, there is a high risk that this loan will not repay as scheduled on its maturity date in July 2012. In its refinancing risk analysis Moody's also took into consideration (i) the size of the whole loan; (ii) the low exit debt yield; and (iii) the average quality of the assets.

The smallest loan is the Gewerbepark loan (22% of the pool). This loan is secured by a purpose built industrial/ distribution and office facility located in north-eastern part of Switzerland. The property comprises approximately 25,500 square meters of lettable area of which 83% is occupied by 60 tenants. The top-3 tenants contribute 87% of rental income as per January IPD. The current reported whole loan DSCR is 1.67x with the surplus cash flow being trapped following the exit of the initial vendor's net income guarantee. The balance (currently EUR1.0 million) is placed in a reserve account available for any future loan and property payment requirements. This partially mitigates the existing adverse lease profile for this loan evidenced by a short WA lease to expiry or break of 3.7 years. This profile is driven by the largest tenant (66% of rental income) which has a lease maturity in 2014. Given the high Moody's whole LTV ratio of 130%, there is a high likelihood that this loan will not repay as scheduled on its maturity date in April 2012. In its refinancing risk analysis Moody's also took into consideration (i) the modest size of the whole loan; (ii) the adverse lease profile coupled with the existing high vacancy of 17%; and (iii) the good quality of the purpose built asset. Moody's has given only limited benefit to the current cash trapping.

Refinancing Risk: All three loans have their maturity in 2012 while the legal final maturity of the Notes is in July 2014. Moody's considers the properties securing the loans overall to be of average quality. Moody's adjustment of the refinancing risk assessment is primarily due to its current expectations that commercial real estate lending will remain scarce over the next two to three years. As highlighted in the Moody's Special Report "EMEA CMBS: 2011 Central Scenarios, Moody's assumes that CRE lending will slowly resume over the coming years but it will remain subject to strict underwriting criteria and depend heavily on the quality of the underlying properties. European non-prime property values are still under pressure given the scarcity of financing for this market segment and hence a meaningful recovery of non-prime property values is not expected before 2012/13. Given the average quality of the property portfolio coupled with the refinancing profile of this transaction, Moody's believes that this transaction is particularly exposed to the recovery of the lending market over the next two to three years. Taking into account the legal final maturity of the Notes in July 2014, Moody's currently assumes an orderly work-out of these loans (i.e. no fire sales of the properties) following loan maturity in 2012. However, the risk of potential sales at distressed prices during the tail period has increased since Moody's last review.

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 only towards the end of the transaction term.

RATING METHODOLOGY

The principal methodologies used in this rating were "Update on Moody's Real Estate Analysis for CMBS Transactions in EMEA" published in June 2005 and "Moody's Updates on its Surveillance Approach for EMEA CMBS" published in March 2009.

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. The last Performance Overview for this transaction was published on 16 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.

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
Jeroen Heijdeman
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
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades two classes of CMBS Notes issued by Deco Series 2005-Pan Europe 1 p.l.c.
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