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Announcement:

Moody's updates on CMBS transaction Fleet Street Finance Two plc

07 Sep 2010

Baa2 rating of Class A Notes is on review for possible downgrade

Frankfurt am Main, September 07, 2010 -- Moody's Investors Service has received a special notice from the servicer stating that the insolvency court has accepted the insolvency plan of the single tenant Karstadt Warenhaus GmbH ("Karstadt") after the potential investor in the tenant had agreed amendments to the lease agreements with the owners of the Karstadt department stores including significant rent reductions. This was the last pre-condition for the sale and purchase agreement entered into by the potential investor and the insolvency administrator to become effective. Following a 14 day period in which creditors who participated in the insolvency proceedings can challenge the court's decision on the insolvency plan, it is anticipated that the new investor will take over the tenant on 1 October 2010.

Fleet Street Finance Two plc closed in October 2006 and represents the securitisation of a single commercial mortgage loan originated by Goldman Sachs Credit Partners L.P. The securitised loan ("Senior Loan") is part of a large financing transaction involving a senior-mezzanine structure, where the mezzanine loan is funded outside the transaction. The Senior Loan and a part of the mezzanine loan ("Mezzanine Loan", together "Loans") share substantially the same property collateral and rental cash flows. Both Loans are secured by first-ranking legal mortgages on primarily retail properties let to Karstadt including 43 department stores; however the Mezzanine Loan is contractually subordinated.

At closing, 100 of the 109 properties were fully let to W2005/Seven BV ("Master Lessee"), which in turn sublet the properties to Karstadt accounting for approximately 98% of the rental income with Quelle GmbH accounting for approximately 2% (both "Sub-Tenants"). Following the opening of formal insolvency proceedings in relation to both Sub-Tenants in September 2009, Quelle GmbH is currently in the process of being liquidated and properties occupied by it have already been vacated. Currently (as per the July 2010 investor report) there are 88 properties in the portfolio. As of July 2010, an updated valuation assuming a going concern and considering the agreed rent reductions was provided. The valuation showed a further value decline of 10% compared to the last provided valuation under the special assumption of a going concern as of November 2009.

On 14 May 2010, Moody's downgraded the Class A Notes to Baa2 and kept the rating on review for further downgrade. The current rating is primarily driven by (i) Moody's expectation that the most likely outcome of the insolvency proceedings of Karstadt will be the stabilisation of the company (going concern); (ii) uncertainties regarding the valid existence of the borrowing entity under German law; (iii) the overall net positive impact of the implemented changes both at Loan and transaction level; and (iv) the significant decrease of the property portfolio value and the deterioration of the German property market compared to closing.

The rating of the Class A Notes remained on review for possible downgrade pending the decision with respect to either an extension of the existing liquidity facility or a new liquidity facility or implementation of a liquidity reserve account for the extended term of the transaction. The rating was and is also sensitive to the actual final outcome of the insolvency proceedings in relation to Karstadt, if different to Moody's expectation of a going concern and stabilisation of the tenant. For further details on the previous rating actions please refer to the press releases on www.moodys.com.

Moody's will conclude the review when (i) there is certainty on the outcome of the insolvency proceedings of Karstadt; (ii) it has reviewed the updated valuation report and assessed the impact of the further value decline; and (iii) it has reviewed the final amended lease agreement, loan agreement and transaction documentation.

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, "Moody's Updates on its Surveillance Approach for EMEA CMBS" March 2009 and "Moody's Approach to Evaluating Distressed Exchanges", 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 web site. The last Performance Overview for this transaction was published on 26 August 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 web site, at www.moodys.com/SFQuickCheck.

For updated monitoring information, please contact monitor.cmbs@moodys.com. To obtain a copy of Moody's New Issuer 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).

Frankfurt am Main
Oliver Moldenhauer
Vice President - Senior Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Frankfurt am Main
Marie-Jeanne Kerschkamp
MD - EMEA Structured Fin
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany

Moody's updates on CMBS transaction Fleet Street Finance Two plc
No Related Data.
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