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Rating Action:

Moody's places several classes of CMBS Notes issued by Titan Europe 2006-1 p.l.c. on review for possible downgrade

03 Mar 2010

EUR 683.3 Million of EMEA CMBS affected

Frankfurt, March 03, 2010 -- Moody's Investors Service has today placed on review for possible downgrade the following classes of Notes issued by Titan Europe 2006-1 plc (amounts reflect initial outstandings):

EUR433.76M A Commercial Mortgage Backed Floating Rate Notes due 2016, Aaa Placed Under Review for Possible Downgrade; previously on Mar 23, 2006 Definitive Rating Assigned Aaa

EUR112.05M B Commercial Mortgage Backed Floating Rate Notes due 2016, Baa1 Placed Under Review for Possible Downgrade; previously on Oct 16, 2009 Downgraded to Baa1

EUR39.76M C Commercial Mortgage Backed Floating Rate Notes due 2016, B1 Placed Under Review for Possible Downgrade; previously on Oct 16, 2009 Downgraded to B1

EUR46.99M D Commercial Mortgage Backed Floating Rate Notes due 2016, Caa2 Placed Under Review for Possible Downgrade; previously on Oct 16, 2009 Downgraded to Caa2

EUR50.61M E Commercial Mortgage Backed Floating Rate Notes due 2016, Ca Placed Under Review for Possible Downgrade; previously on Oct 16, 2009 Downgraded to Ca

Moody's does not rate the Class F, Class G, and Class H Notes issued by Titan Europe 2006-1 plc. Today's 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

Titan Europe 2006-1 plc closed in March 2006 and represents the securitisation of initially ten commercial mortgage loans originated by Credit Suisse International. The loans were secured by first-ranking legal mortgages over 56 commercial properties located in Germany. The properties were predominantly mixed-use (45% of the original portfolio by underwriter market value) followed by office (28%), industrial warehouse (15%), hotel (8%) and retail (4%).

Since closing of the transaction, five loans (47% of the initial portfolio balance), prepaid in full. In addition, there was one property disposal from the portfolio securing the Mangusta Loan. The prepayment proceeds were allocated 50% sequential and 50% pro-rata to the Notes. The remaining loans are not equally contributing to the portfolio: the largest loan (the Mangusta Loan) represents 34.2% of the current portfolio balance, while the smallest loan (the Nuremberg Retail Distribution Centre Loan, "Nuremberg Loan") represents 5.9%. The current loan Herfindahl index is 4.1 compared to 7.5 at closing, indicating a higher loan concentration after the prepayments. Following the property disposal and prepayments, the remaining five loans are secured by 26 properties. The property type composition of the portfolio has changed compared with closing with industrial warehouse currently contributing 31.3%, office 23.8%, mixed-use 20.8%, hotel 17.4% and other 6.7%.

As of the last interest payment date ("IPD") in January 2010, out of the five remaining loans, both the Mangusta Loan and the KQ Warehouse Loan were subject to an event of default. The Mangusta loan (34.2% of the current portfolio balance) was transferred into special servicing in June 2008 due to insufficient reporting by the borrower and experienced a first payment shortfall on the April 2009 IPD. The KQ Warehouse Loan (23.0% of the current portfolio balance) appeared on the servicer's watchlist in July 2009 due to the insolvency of the tenants Karstadt Quelle AG and Karstadt Vermietungsgesellschaft mbH, which generate 100% of the property cash flows for the loan. In October 2009 the insolvency administrator of the tenants decided to liquidate the Quelle group and terminated the relevant leases. Consequently, no rental payment was received for the Jan 2010 IPD in relation to the Karstadt Quelle AG-let warehouse in Leipzig that makes up 95% of the scheduled rent. Only a limited amount of interest and principal payments were received by the borrower, hence the loan suffered a payment default.

In October 2009, Moody's downgraded the Class B Notes from Aaa to Baa1, the Class C Notes from A1 to B1, the Class D Notes from Baa2 to Caa2 and the Class E Notes from Ba3 to Ca. The downgrade was driven by i) the adverse performance of the Mangusta Loan and the uncertainty surrounding the future performance of the KQ Warehouse Loan which together comprises approximately 57% of the current portfolio; (ii) the transaction's refinancing profile; (iii) the most recent performance of the German commercial property markets; and (iv) Moody's opinion about future property market performance.

Following the default of the Mangusta Loan, the sequential payment trigger in the transaction has been hit; therefore, further proceeds from prepayments, balloon payments and recoveries will be allocated sequentially to the Notes.

2) Rating Rationale

Today's rating actions follow events that occurred since Moody's last rating action with respect to the Mangusta and the KQ Warehouse Loan, in particular:

(i) a further value decline reported for the property portfolio securing the Mangusta Loan as well as increased legal and property management concerns; and

(ii) a significant value decline reported for the Leipzig property in the KQ Warehouse Loan according to a valuation as per February 2010.

A new valuation for the Mangusta portfolio per October 2009 reports a property value of EUR 86.45 million (translating into a 139.2% securitised LTV), a decline of further 35.5% compared to EUR 134.1 million reported in Q3 2008 (Moody's trough value assessed in the October 2009 rating review was EUR 96 million). Furthermore, the initial German borrowing entities were dissolved, and their assets had accreted to an Austrian legal entity which is legally now the borrower under the loan. A German court opened preliminary insolvency proceedings against the new borrower based on the Centre of Main Interest concept. An insolvency administrator is now in charge of the new borrower. In its rating review, Moody's will analyse any potential legal considerations regarding the insolvency process. Moreover, Moody's will monitor how the insolvency administrator's workout strategy might impact recovery proceeds from the sale of the assets. Moody's is also concerned about the property management performance after the sponsor of the loan is apparently no longer willing to actively manage the properties.

The new value of EUR 26.713 million of the KQ Warehouse portfolio compares to a market value of EUR 122.99 million reported in March 2006 (Moody's trough VPV assessed in the October 2009 rating review was EUR 70 million). Based on last IPD loan balance, the new value translates into a 304% securitised LTV. Most of the value decline is due to the now predominantly vacant nature of the asset, combined with significant investments that is according to the valuer necessary to re-let the property. In its review, Moody's will analyse in detail the new valuation, especially in relation to re-letting prospects and associated costs.

3) 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 8 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 [email protected] 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 Schmitt
Asst Vice President - Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's places several classes of CMBS Notes issued by Titan Europe 2006-1 p.l.c. on review for possible downgrade
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