

Fitch has downgraded two classes of notes from the contentious Titan Europe 2006-2 CMBS, which is currently subject to court action by its Class X noteholder.
The ratings agency downgraded the deal’s €9.4 million Class F from CCC to C, and the €29.3 million Class G from CC also to C.
Titan Europe 2006-2 is secured by two loans backed by German multi-family housing. Fitch said that the downgrade reflects the very limited time to legal final maturity in January 2016 for any further recovery proceeds from the loans – known as Margaux and Labrador – meaning that the F and G classes are expected to default. A further downgrade of the notes to D and the subsequent withdrawal of the rating is expected after the legal final maturity.
Titan Europe 2006-2 is one of four deals issued by the Titan CMBS conduit which are subject to legal action from its Class X noteholder, Credit Suisse Asset Management, which claims it was underpaid because of a miscalculation in the interest due to it. Credit Suisse AM says it is entitled to default interest payments from the Titan 2006-1, 2006-2, 2007-2 and 2007-CT1X deals, plus interest accrued on the Class X strip.
Among other reasons for the downgrade, Fitch said that the legal proceedings brought by Credit Suisse AM pose a risk. Assuming gross future recoveries of €46 million, Fitch said that €30 million will be deducted to cover costs associated with borrower unwind, class X litigation and the liquidity facility repayment, leaving €16 million for the class F and G notes.
The €43.8 million Labrador portfolio loan has been in German insolvency for almost three years. A real estate advisor has been appointed to aim for higher recoveries, although Fitch said that it expects a significant loss on the loan.
The recovery estimate for Class F is 10 percent, with Class G at 20 percent. The recovery estimates recognise the small remaining balance of the class F notes compared with the expected recovery proceeds from the Labrador loan. The G notes will likely make a significant loss given the possibility of additional expenses, including those resulting from litigation from the class X noteholder.
A hearing on the Class X action is scheduled for February 2016 at the High Court in London.