TEXT-S&P lowers all ratings in U.K. CMBS Cornerstone Titan 2005-1

Fri Nov 30, 2012 9:28am EST

Our ratings in Cornerstone Titan 2005-1 address timely payment of interest, payable quarterly in arrears, and payment of principal not later than the legal final maturity date (in July 2014).

The class D, E, and F notes experienced interest shortfalls on the October interest payment date. We understand that although the borrowers met their interest payment obligations, there was not enough money available to cover in full interest due under the class D, E and F notes. The class F notes are subject to an available fund cap (AFC). The AFC reduces interest payable to the class F notes to the amount of cash available (remaining after servicing senior-ranked classes of notes) if the mismatch results from loan repayments.

We have not lowered to 'D (sf)' our ratings on the class D and E notes because the existing interest shortfall remains minor, in our view, and might be repaid. In the case of the class F notes, as the difference between the interest due and the interest payable is extinguished under the transaction documents, we have given credit to the AFC in our analysis and have not lowered our rating to 'D (sf)'.

However, based on the latest metrics reported for the transaction, the class E and F notes could be at risk of principal losses. We have therefore lowered our ratings on the class E and F notes to 'CCC- (sf)'. We may lower our ratings further on the class D, E, and F notes to 'D (sf)' if they continue to experience interest shortfalls or become more vulnerable to principal losses.

Based on our rating definitions, we believe our ratings are no longer commensurate with the risks that the class C and X notes face as the transaction nears its July 2014 legal maturity date. We have therefore lowered to 'A (sf)' from 'AA- (sf)' our ratings on the class C and X notes.

We have also removed from CreditWatch negative our ratings on the class C and X notes, where we had placed them following the lowering to 'A-/A-1' from 'AA-/A-1+' of our ratings on Barclays Bank PLC (see "Related Criteria And Research"). Barclays Bank (A+/Negative/A-1) acted as the liquidity facility provider for Cornerstone Titan 2005-1.

As a result of the downgrade of Barclays Bank's short-term rating, a liquidity facility standby drawing has occurred. These funds are now held in the standby liquidity facility account, which is operated by Elavon Financial Services Ltd. (AA-/Stable/A-1+). Under our 2012 counterparty criteria, the ratings on these notes are not constrained by the ratings on any of the counterparties as the transaction documentation complies with our current criteria (see "Counterparty Risk Framework Methodology And Assumptions," published on Nov. 29, 2012).

As a result of our downgrade of the class X notes, we have withdrawn this rating in accordance with our criteria for rating interest-only securities (see "Global Methodology For Rating Interest-Only Securities," published on April 15, 2010). For interest-only securities that reference either the entire asset pool of a transaction or an amortization schedule or formula, we maintain their current ratings until all principal- and interest-paying classes rated 'AA-' or higher have been retired or lowered below that rating level--at which time we will withdraw these interest-only ratings.

Cornerstone Titan 2005-1 is a commercial mortgage-backed securities (CMBS) transaction, which closed in October 2005. The transaction was originally secured by nine loans. Since closing, seven loans have fully repaid. Two loans are remaining, which are secured on two U.K. commercial properties. Both loans have failed to repay at loan maturity and are currently in special servicing.

POTENTIAL EFFECTS OF PROPOSED CRITERIA CHANGES

On Nov. 7, 2012, we published our updated criteria for rating European CMBS (see "European CMBS Methodology And Assumptions"). The criteria update refines the approach to rating European CMBS transactions, and provides a more transparent framework for analyzing the commercial real estate assets and transaction structures commonly associated with European CMBS. We expect that the criteria update will have a moderate impact on outstanding ratings on European CMBS, based on a sample of transactions we tested. The impact on investment-grade ratings is likely to be greater than that on speculative-grade ratings.

These criteria will be effective for all in-scope ratings from Dec. 6, 2012, at which time we expect to place all the ratings likely to be affected on CreditWatch. We expect to resolve any rating changes within six months of the effective date of the criteria.

RELATED CRITERIA AND RESEARCH

-- Counterparty Risk Framework Methodology And Assumptions, Nov. 29, 2012

-- European CMBS Methodology And Assumptions, Nov. 7, 2012

-- Application Of Property Evaluation Methodology In European CMBS Transactions, Nov. 7, 2012

-- Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012

-- CMBS Global Property Evaluation Methodology, Sept. 5, 2012

-- Criteria Methodology Applied To Fees, Expenses, And Indemnifications, July 12, 2012

-- Standard & Poor's Ratings Definitions, June 22, 2012

-- European Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, March 14, 2012

-- Ratings On 122 Tranches In 65 European CMBS Transactions Placed On CreditWatch Negative After Bank Rating Actions, Jan. 31, 2012

-- Global Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011

-- Principles Of Credit Ratings, Feb. 16, 2011

-- Timeliness of Payments: Grace Periods, Guarantees, And Use Of 'D' and 'SD' Ratings, Dec. 23, 2010

-- Methodology: Credit Stability Criteria, May 3, 2010

-- Global Methodology For Rating Interest-Only Securities, April 15, 2010

-- Use Of CreditWatch And Outlooks, Sept. 14, 2009

-- Rating U.S. CMBS In The Face of Interest Shortfalls, Feb. 23, 2006

-- European CMBS Monthly Bulletin, published monthly

RATINGS LIST

Class Rating

To From

Cornerstone Titan 2005-1 PLC

GBP592.043 Million Commercial Mortgage-Backed Floating- And Variable-Rate Notes

Rating Lowered And Removed From CreditWatch Negative

C A (sf) AA- (sf)/Watch Neg

Ratings Lowered

D B+ (sf) BB+ (sf)

E CCC- (sf) B+ (sf)

F CCC- (sf) B- (sf)

Rating Lowered, Removed From CreditWatch Negative, And Withdrawn

X A (sf) AA- (sf)/Watch Neg

NR A (sf)