OREANDA-NEWS. Fitch Ratings has downgraded Titan Europe 2007-2 Limited's class A2 and B floating rate notes due 2017 as follows:

EUR63.9m Class A2 (XS0302916381) downgraded to 'CCCsf' from 'Bsf'; Recovery Estimate (RE) RE100%

EUR154.3m Class B (XS0302917272) downgraded to 'Csf' from 'CCsf'; RE35%

EUR115.2m Class C (XS0302917512) affirmed at 'Csf'; RE0%

EUR86.1m Class D (XS0302917868) affirmed at 'Csf'; RE0%

EUR37.9m Class E (XS0302919138) affirmed at 'Csf'; RE0%

EUR12.5m Class F (XS0302919641) affirmed at 'Dsf'; RE0%

EUR0m Class G (XS0302920730) affirmed at 'Dsf'; RE0%

Titan Europe 2007-2 Limited is a CMBS transaction secured by three loans backed by commercial real estate assets in the Netherlands, Finland and the Czech Republic.

KEY RATING DRIVERS

The downgrade of the senior notes reflects the proximity to legal final maturity (LFM) and the slow pace of completed sales since Fitch's last rating action. Recoveries from property sales over the last year were slightly better than anticipated, which has driven a small improvement in the RE for the class B notes.

Two loans have repaid at a discount since Fitch's last rating action. The Nantes loan was cancelled in January registering a EUR2m loss, which was applied to the class F notes. A smaller loss of EUR0.5m was incurred in July following the resolution of the Caprice loan. Both recovery outcomes were in line with Fitch's expectations.

The current low interest rate environment is helping the remaining three floating rate loans reduce leverage via cash sweep. However, the prospect of repaying a material sum of note balance by LFM in April is narrowing, underlining the possibility of a class A2 event of default. In Fitch's view a sale of the MPC portfolio would be required to avert this outcome. Such a sale should raise enough proceeds to repay class A2 in full, which supports its 100% RE.

Investor appetite for the properties backing the Finnish Cobalt loan is weak, while the Czech Skoduv Palace loan is subject to ongoing disputes, meaning that resolution of either in the near term is unlikely. Whether the tenant in the Czech property will appeal a court ruling that found in favour of the landlord is creating uncertainty, and will hinder attempts to refinance the collateral.

The limited demand for secondary Finnish assets of the kind that back Cobalt is reflected in an updated valuation, which reports a 38% decline in market value (estimated at EUR23m, assuming individual property sales over a 12 month period) since the previous appraisal in 2013. The five properties that have been sold out of this portfolio in the last year have been released at less than half of their 2013 market value. Even at depressed values it is likely that full resolution of this loan will stretch beyond LFM.

RATING SENSITIVITIES

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

Fitch estimates total loan recoveries in its 'Bsf' scenario to be approximately EUR141m.

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 Capita Asset Services as at 12 May 2016

- Transaction reporting provided by US Bank as at 25 April 2016