OREANDA-NEWS. Fitch Ratings has downgraded Talisman 7 plc's class C, D and E notes and affirmed the class F notes, as follows:

EUR63.2m class C: downgraded to 'CCsf' from 'Bsf'; Recovery Estimate (RE) 100%

EUR66.5m class D: downgraded to 'CCsf' from 'CCCsf'; RE 30%

EUR47.1m class E: downgraded to 'Csf' from 'CCsf'; RE 0%

EUR68.9m class F: affirmed at 'Csf'; RE 0%

The transaction was originally a securitisation of 10 commercial mortgage loans originated by ABN AMRO Bank NV with a cumulative balance of EUR1,826m at closing. The loans were backed by 56 properties located in Germany with a current market value (MV) of EUR221.9m. In June 2016, six loans, all in special servicing, backed the notes.

KEY RATING DRIVERS

Over the last 12 months, the class B notes (EUR66m) have been paid in full and the class C notes have amortised to EUR63.2m from EUR84.2m through asset sales. The individual performance of the properties backing the portfolio remains largely unchanged. The short time until legal final maturity (1 May 2017) creates uncertainty regarding timely recoveries and has driven the downgrade of the senior tranches.

The Mozart loan asset sales (largest senior loan in the portfolio, EUR147.4m part of a EUR287.4m whole loan) has progressed with 10 asset sales over the past year, leaving seven mixed-use properties located around Germany in the portfolio. Fitch understands from the issuer that sale agreements for a further three assets have been signed. The sales pace, combined with sale prices on average being close to the assets' respective valuations, provides additional support to Fitch's expected recoveries. The loan-to-value has increased to 323% from 167% over the last 12 months due to properties being sold below the respective original allocated loan amounts.

The Eschborn office asset securing the Brahms loan was sold for EUR23.4m in January 2014. The Bruckner portfolio has also been sold for EUR43.5m with the sale closing in February 2016. Both loans are going through insolvency proceedings. When the resolution is completed a loss of around EUR31m will be allocated to the class G, H and I notes.

In addition to an already lengthy resolution, the current low interest rate environment reduces the urgency for administrators to liquidate income-producing collateral, making a timely recovery for the class C and D notes unlikely. Nevertheless, secondary and tertiary real estate in Germany has seen investor interest returning after years of subdued demand. The achievable prices are still well below those seen in 2005-2007, when these loans were originated, but ultimate recoveries will be adequate to repay the whole class C notes balance and part of the class D notes' balance.

RATING SENSITIVITIES

Any notes outstanding at legal final maturity will be downgraded to 'Dsf' and withdrawn.

Fitch estimates 'Bsf' collateral proceeds allocated to note principal at EUR85m.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY

Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Fitch did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. The subsequent performance of the transaction over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION

The information below was used in the analysis.

- Servicer reports provided by Hatfield Philips as at 06 May 2016

- Transaction reporting provided by US Bank as at 22 May 2016

- Investor presentation provided by Hatfield Philips as at 19 May 2016