OREANDA-NEWS. Fitch Ratings has downgraded Titan Europe 2006-2 plc's class F and G notes due 2016, and affirmed the others, as follows:

EUR9.4m Class F (XS0254358699) downgraded to 'Csf' from 'CCCsf'; Recovery Estimate (RE) 100%
EUR29.3m Class G (XS0254648263) downgraded to 'Csf' from 'CCsf'; RE 20%
EUR21m Class H (XS0254647612) affirmed at 'Dsf'
EUR0m Class J (XS0254653180) affirmed at 'Dsf'

Titan Europe 2006-2 Plc is a CMBS transaction secured by two loans backed by multifamily housing assets in Germany.

KEY RATING DRIVERS
The downgrade reflects the very limited time to legal final maturity (in January 2016) for any further recovery proceeds from the Margaux or Labrador loans to be received. Hence, the class F and G notes are expected to default on this date. The Recovery Estimates recognise the small remaining balance of the class F notes compared with the expected recovery proceeds from the Labrador loan, while the class G notes will likely make a significant loss given the possibility of additional expenses, including resulting from litigation from the class X noteholder.

In December 2013 an asset purchase agreement on the underlying Margaux properties was entered into for a reported purchase price of EUR268m and completed at the end of 2014. The amount of recovery proceeds from the EUR264.4m loan will be subject to disposal costs, including the cost of winding up Margaux Portfolio Property Companies. To date, EUR248.5m of the net proceeds have been released to the issuer by the special servicer. However, there is uncertainty about the timing and level of the remaining proceeds (EUR15.9m of cash is currently being held back by the servicer).

The EUR43.8m Labrador portfolio loan continues to be administered by a German insolvency official, a process that has dragged on for almost three years. A real estate advisor has been appointed to identify measures that will lead to higher recoveries on the loan. Fitch expects a significant loss on this loan and no resolution prior to legal final.

A further risk for the class G noteholders comes in the form of legal proceedings brought by Credit Suisse Asset Management (CSAM), holder of the class X notes. According to a notice on 9 October 2015, CSAM believes that it has been underpaid class X payments because of alleged calculation errors (specifically the exclusion of default interest). Should the courts find in favour of CSAM, it is expected to be owed also accrued interest, at a rate that is also subject to deliberation. Fitch expects these proceedings to extend beyond legal final.

Fitch assumes that around EUR46m represents gross future recoveries, of which EUR30m will be deducted to cover costs associated with borrower unwind, class X litigation and liquidity facility repayment, leaving EUR16m for the class F and G notes.

RATING SENSITIVITIES
Fitch fully expects the upcoming legal final maturity will result in a downgrade of the class F and G notes to 'Dsf' and their subsequent withdrawal. Recoveries for the class G notes may exceed the Recovery Estimate subject to bids for the Labrador portfolio reflecting Fitch's understanding of demand for similar assets.

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.
- Transaction reporting provided by Hatfield Philips International as at 6 November 2015