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Rating Action:

Moody's upgrades Class A EMEA CMBS Notes issued by Titan Europe 2006-2 plc

04 Jun 2013

Frankfurt am Main, June 04, 2013 -- Moody's Investors Service has today taken rating actions on the following classes of Notes issued by Titan Europe 2006-2 plc (amounts reflect initial outstanding):

....EUR530M Class A Notes, Upgraded to A3 (sf); previously on Aug 7, 2012 Confirmed at Baa3 (sf)

....EUR0.05M Class X Notes, Affirmed B3 (sf); previously on Aug 22, 2012 Downgraded to B3 (sf)

Moody's does not rate the Class B, C, D, E, F, G, H, and J Notes.

RATINGS RATIONALE

Today's upgrade action is driven by the substantial increase in credit enhancement for the Class A Notes (87%) which has built up following the sequential allocation of principal receipts from the Petrus Portfolio Loan repayment and the recovery proceeds from the Velvet portfolio Loan. This enhancement level more than offsets the impact of Moody's higher loss expectations for the remaining pool. The rating on the Class X Notes is affirmed because the current rating is commensurate with the updated risk assessment.

Moody's expects full repayment of the Class A Notes before the legal final maturity date in January 2016. However, the extent of the upgrade is limited by the remaining tail period of 2.75 years and the lack of visibility on the work-out timing for the two remaining German multi-family loans that are in special servicing. Currently, none of the underlying properties are in sale process and given their mostly secondary quality and overall high vacancy levels averaging around 19%, the disposal process could be extended into the final year of the tail period.

There are no B-loan portions for the Margaux and Labrador Portfolio Loans and Moody's current weighted average LTV is 139%. In comparison, the Underwriter (UW) LTV is 100.8%. Moody's value for the whole securitized portfolio is EUR 228 million versus the EUR 315.16 million UW value. Both loans are in maturity payment default and given Moody's underlying property value, Moody's has a 25%-50% loss expectation for both loans.

The key parameters in Moody's analysis are the default probability of the securitised loans (both during the term and at maturity) as well as Moody's value assessment for the properties securing these loans. Moody's derives from those parameters a loss expectation for the securitised pool.

In general, Moody's analysis reflects a forward-looking view of the likely range of commercial real estate collateral performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside an acceptable range of the key parameters such as property value or loan refinancing probability for instance, may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated when the related securities ratings were issued. Even so, a deviation from the expected range will not necessarily result in a rating action nor does performance within expectations preclude such actions. There may be mitigating or offsetting factors to an improvement or decline in collateral performance, such as increased subordination levels due to amortisation and loan re- prepayments or a decline in subordination due to realised losses.

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) lending will remain constrained over the next years, while subject to strict underwriting criteria and heavily dependent on the underlying property quality, (ii) strong differentiation between prime and secondary properties, with further value declines expected for non-prime 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 anticipated economic recovery. Overall, Moody's central global macroeconomic scenario for the world's largest economies is for only a gradual strengthening in growth over the coming two years. Fiscal consolidation and volatility in financial markets will continue to weigh on business and consumer confidence, while heightened uncertainty hampers spending, hiring and investment decisions. In 2013, Moody's expects no growth in the Euro area and only slow growth in the UK.

MOODY'S PORTFOLIO ANALYSIS

Currently, two loans of the initial seven remain in the pool and are secured by first-ranking legal mortgages over 47 properties. The pool exhibits above average concentration in terms of geographic location and property type as all are multi-family properties in Germany. Moody's uses a variation of Herf to measure diversity of loan size, where a higher number represents greater diversity. Large multi-borrower transactions typically have a Herf of less than 10 with an average of around 5. This pool has a Herf of 1.31 compared to a Herf of 5.23 at closing.

The multi-family Petrus Portfolio Loan with EUR 208 million securitized balance was repaid on the January 2013 IPD. This loan and the Margaux Portfolio Loan had the same sponsor and were cross defaulted only. The sale of the Petrus Portfolio resulted in EUR 15 million of surplus sale proceeds. Despite not being cross collateralized, a portion of the surplus will be used to fund capex requirements under the Margaux Portfolio and will also be used towards repayment of amounts due under the Margaux Portfolio Loan.

The Velvet Portfolio Loan was sold in April 2013. This resulted in EUR 125.63 million recovery for the Class A Notes and EUR 15.37 million loss allocated to the Class J and H Notes.

The Margaux Portfolio Loan (86.2% of the pool) is secured by 66 properties (grouped together into 4 properties by the servicer) located mainly in East Germany. There are approximately 8,350 residential units, 120 commercial units and 1,106 other units. The vacancy in the portfolio is 19.3% which has improved compared to 2008-2009 when vacancy was 27%. The high vacancy is partly driven by the poor condition of some of the properties and the weak demographic profile of some of the properties' locations. The June 2012 valuation report indicated a EUR 15.9 million capex requirement compared to the capex spend in 2012 of EUR 6.8 million. The current Moody's LTV of 140%, should improve over time as a portion of the GBP 15 million Petrus surplus sales proceeds is expected to be used towards the Margaux Loan and properties. The UW LTV is 102%.

The Labrador Portfolio Loan (13.8% of the pool) is secured by 43 multifamily properties in Northern Germany with approximately 1,500 residential units. The vacancy of this portfolio is also high at 18.7%. The loan has been in special servicing since November 2010 and cold forced administration with the insolvency administrator has been finalised recently. There is very limited visibility on the performance of this portfolio due to insufficient reporting. Moody's LTV is 134% versus the UW LTV of 91.4%.

RATING METHODOLOGY

The methodologies used in this rating were Moody's Approach to Real Estate Analysis for CMBS in EMEA: Portfolio Analysis (MoRE Portfolio) published in April 2006 and Rating Caps for CMBS in the Tail Period, published in October 2011. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Other factors used in this rating are described in European CMBS: 2013 Central Scenarios published in February 2013.

The updated assessment is a result of Moody's on-going surveillance of commercial mortgage backed securities (CMBS) transactions. Moody's prior assessment is summarised in a press release dated August 22, 2012. The last Performance Overview for this transaction was published on May 13, 2013.

In rating this transaction, Moody's used both MoRE Portfolio and MoRE Cash Flow to model the cash-flows and determine the loss for each tranche. MoRE Portfolio evaluates a loss distribution by simulating the defaults and recoveries of the underlying portfolio of loans using a Monte Carlo simulation. This portfolio loss distribution, in conjunction with the loss timing calculated in MoRE Portfolio is then used in MoRE Cash Flow, where for each loss scenario on the assets, the corresponding loss for each class of notes is calculated taking into account the structural features of the notes. As such, Moody's analysis encompasses the assessment of stressed scenarios.

Moody's ratings are determined by a committee process that considers both quantitative and qualitative factors. Therefore, the rating outcome may differ from the model output.

REGULATORY DISCLOSURES

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of this transaction in the past six months.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Oliver Schmitt
Vice President - Senior Analyst
Structured Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Andrea M. Daniels
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Viola karoly
AVP - Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's upgrades Class A EMEA CMBS Notes issued by Titan Europe 2006-2 plc
No Related Data.
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