OREANDA-NEWS. Fitch Ratings has downgraded DECO 7 - Pan Europe 2 plc's class E notes due 2018 and affirmed the others, as follows:

EUR1.7m class D (XS0244896048) affirmed at 'Bsf'; Outlook Stable
EUR35.8m class E (XS0244896394) downgraded to 'Csf' from 'CCsf'; Recovery Estimate (RE) 20%
EUR19.4m class F (XS0246471881) affirmed at 'Csf'; RE 0%
EUR16.4m class G (XS0246474042) affirmed at 'Csf'; RE 0%
EUR33.2m class H (XS0246475445) affirmed at 'Dsf'; RE 0%

The transaction is the securitisation of 10 commercial real estate loans originated by Deutsche Bank AG between August 2005 and February 2006. Only one loan remains - the defaulted Karstadt Kompakt loan, which is being specially serviced by Hatfield Philips International Ltd. It is secured on nine vacant retail warehouses located in Germany.

KEY RATING DRIVERS
The affirmation of the class D notes reflects our unchanged expectation that it will be repaid with a margin of safety. The downgrade of the class E notes reflects the inevitability, in Fitch's view, of principal losses for this tranche and those junior to it.

The EUR75.4m World Fashion Centre loan repaid in full in October 2015, in line with Fitch's expectations, resulting in the full redemption of the class B and C notes and substantial repayment of the class D notes (which have an outstanding balance of only EUR1.7m).

The collateral for the remaining EUR106.4m Karstadt Kompakt loan is being liquidated, with six out of 15 assets sold since our last rating action in March 2015. The realised sales prices and net sales proceeds were broadly in line with the latest valuation (around EUR9m). However, only EUR1m of principal has been distributed, with some funds used to largely clear unpaid interest, cover sales-related costs and repay liquidity facility drawings. Furthermore, some sales proceeds are being escrowed for future costs, as there is virtually no property income.

The loan-to-value ratio is in excess of 500%, leaving an asset value capable of repaying the remaining class D principal and returning around 20% to the class E notes. However, there is uncertainty as to the final amount returned given borrower and issuer costs as well as loan carry costs associated with delays rank senior to principal on the notes.

RATING SENSITIVITIES
Fitch estimates 'Bsf' recoveries of EUR9m.

The class D note risks being downgraded should it remain outstanding as bond maturity nears. The class E, F and G notes will be downgraded to 'Dsf' once losses are finally realised.

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 Situs Asset Management as at October 2015
-Transaction reporting provided by Deutsche Bank AG as at October 2015/January 2016