Dec 13 - Fitch Ratings has affirmed Titan Europe 2006-2 plc's floating rate
notes due 2016 as follows:
EUR373.5m Class A (XS0254356990) affirmed at 'BBB-sf'; Outlook Negative
EUR61.7m Class B (XS0254357378) affirmed at 'Bsf'; Outlook Negative
EUR44.1m Class C (XS0254357881) affirmed at 'CCCsf'; Recovery Estimate (RE)
EUR23.1m Class D (XS0254357964) affirmed at 'CCCsf'; RE0%
EUR57.5m Class E (XS0254358004) affirmed at 'CCsf'; RE0%
EUR37.4m Class F (XS0254358699) affirmed at 'CCsf'; RE0%
EUR29.3m Class G (XS0254648263) affirmed at 'CCsf'; RE0%
EUR28.2m Class H (XS0254647612) affirmed at 'CCsf'; RE0%
EUR11.5m Class J (XS0254653180) affirmed at 'CCsf'; RE0%
The affirmation reflects falling vacancy rates and rising gross rents over the
past 12 months on the three largest loans (EUR267.2m Margaux, EUR208m Petrus and
EUR134.6m Velvet) as well as the Margaux default at its maturity in July 2012.
All four remaining loans are secured on German multifamily housing portfolios.
As certain conditions were not met, the Margaux loan failed to get an extension
at its maturity in July 2012. The Petrus loan, cross-defaulted with Margaux,
also defaulted in spite of meeting all covenants and being the best-performing
loan in the transaction. The current cost ratios on all loans remain above
market standard, in order to improve asset quality and pay off operating
expenses (opex). However, the Velvet, Margaux and Petrus Portfolios are still
experiencing high rental arrears. Three loans are subject to default interest,
and forthcoming workout-related expenses may reduce recoveries as all loans are
A revaluation of the Velvet collateral in September 2011 resulted in a reported
loan-to-value ratio of 106% (119% including the not securitised B-note), down
from 154% (172% on the whole loan) previously reported, based on an October 2010
valuation. At this time, the special servicer rejected a discounted payoff (DPO)
offer by the borrower who proposed to repurchase the securitised loan for
EUR129.4m, EUR5.2m below the valuation.
The current exit strategy is to attempt to sell the portfolio prior to loan
maturity in January 2013, for a price more reflective of the improved loan
performance than the borrower's offer. The improvements were predominantly the
result of large investments in capital expenditure (capex) and opex, using
equity and diverting the majority of rental income, while loan interest payments
were accrued but not paid until loan maturity.
In Margaux, approximately 90% of the quarterly rent received in October 2012 was
spent on capex and opex. At the same time default interest remained unpaid. The
vacancy rate remains high at 18%, albeit improved from the peak (28%) in January
2009. Although the reported LTV (102%) would suggest only minor losses, Fitch
believes that a sizable risk premium would be demanded by a potential buyer, due
to capex/opex requirements, rental arrears and asset location (predominantly in
the former East Germany).
The Labrador borrower and special servicer both filed for insolvency proceedings
over the borrower's assets in November 2012. Both proceedings are expected to be
combined to simplify the process. However, Fitch expects a prolonged resolution
for this loan, which has been in special servicing since June 2008 (except for a
brief period in 2010 when performance temporarily improved).
Unlike its larger peers, Labrador did not experience any significant rental
increases over the last year, with vacancy actually declining to 21% from 18%
over the same period. Fitch continues to expect lower recoveries than the
reported LTV (91%) may imply. All principal received by the issuer, whether from
sales, DPOs or refinancing, will be applied on a sequential basis as all loans
Additional information is available on www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
The sources of information used to assess these ratings were the issuer,
servicer, and periodic payment reports.
Applicable criteria, 'Global Structured Finance Rating Criteria', dated 6 June
2012; 'EMEA CMBS Rating Criteria' dated 4 April 2012; 'Counterparty Criteria for
Structured Finance Transactions', dated 30 May 2012 and 'Counterparty Criteria
for Structured Finance Transactions: Derivative Addendum', dated 30 May 2012,
are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
EMEA CMBS Rating Criteria
Counterparty Criteria for Structured Finance Transactions
Counterparty Criteria for Structured Finance Transactions: Derivative Addendum