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Rating Action:

Moody's Downgrades Class A of EMEA CMBS Notes issued by TAURUS CMBS (PAN-EUROPE) 2006-3 P.L.C.

27 Oct 2014

Approximately EUR31.4 Million of CMBS Affected

London, 27 October 2014 -- Moody's Investors Service has downgraded the ratings of Class A of Notes issued by TAURUS CMBS (PAN-EUROPE) 2006-3 P.L.C.

Moody's rating action is as follows:

....EUR336M(current outstanding balance of EUR31.4M) A Notes, Downgraded to Ba3 (sf); previously on Nov 29, 2013 Downgraded to Ba1 (sf)

Moody's does not rate the Class B, Class C, Class D, Class X1 and the Class X2 Notes.

RATINGS RATIONALE

Today's downgrade action reflects Moody's concerns regarding (i) the timeliness of the principal repayment of Class A, given the short remaining time of six months until the legal final maturity of the notes, and (ii) the modified pro-rata distribution of the proceeds before a Note Enforcement Notice is served.

Since its prior action in November 2013, Moody's has not materially adjusted its recovery estimate on the defaulted Triumph Loan (EUR 49 million -- 100% of the pool). There is also additional debt in the form of a non-securitized B-note of EUR 12.7 million. In Moody's view, the full recovery of the securitised loan is essential for the full and timely repayment of the Class A Notes, because the issuer waterfall will switch from modified pro-rata to a fully sequential allocation only after a Note Enforcement Notice is served.

Methodology Underlying the Rating Action:

The principal methodology used in this rating was Moody's Approach to Rating EMEA CMBS Transactions published in December 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of the rating:

Main factors or circumstances that could lead to a downgrade of the Class A rating are (i) further delays in the sale of the underlying property, which will increase the probability of non-payment at the notes legal final maturity on 4 May 2015 and a subsequent note event of default, and (ii) a sale of the underlying property at a price such that a loss on the securitised loan is incurred and the distribution of the recoveries on a modified pro-rata basis.

An upgrade of the Class A rating is unlikely given the limited time to the legal final maturity of the notes and the uncertainty regarding the resolution of a successful sale process during this limited period and, as such, it is subject to Moody's rating caps for CMBS transactions in the tail period. For more information, please refer to: https://www.moodys.com/research/Rating-Caps-for-CMBS-in-the-Tail-Period--PBS_SF259026.

MOODY'S PORTFOLIO ANALYSIS

Taurus CMBS (Pan-Europe) 2006-3 P.L.C. closed in November 2006 and represents the securitisation of initially seven mortgage loans originated by Merrill Lynch International Bank Limited, Merrill Lynch Capital Markets Bank Ltd, Merrill Lynch Commercial Finance Corporation (Merrill Lynch). The loans were secured directly and indirectly by first-ranking legal mortgages over initially 29 commercial properties located in Switzerland (70% of initial underwriter's market value), France (18%) and Germany (12%). The property use was mainly retail (50%) and office (45%). Since closing, approximately 89% of the initial pool (six loans) repaid or prepaid. The proceeds of the loans were applied partly on a modified pro-rata and partly on a pro-rata basis to the Notes. Compared with closing, the Class A principal balance reduced to EUR 31 million from EUR 366 million and its subordination level increased from 25% to 36%.

The Class A notes could suffer a loss in a scenario where the last remaining securitised loan (€49 million as of August 2014 interest payment date) is worked out with a loss and the recoveries are distributed on a modified pro-rata basis. However this is not the current Moody's base case scenario. This exposure to a portion of the first loss piece on the last remaining securitised loan is due to weaknesses in the structure of the transaction, such as (i) a weak sequential trigger; (ii) a relatively short tail period between the maturity of the last loan in the pool (January 2013) and the legal final of the notes (May 2015), especially given the jurisdiction of the loan work-out, the A/B loan structure and the modified pro-rata allocation of proceeds of the Triumph loan, and (iii) junior noteholders remain the Controlling Party throughout the note enforcement process.

The issuer waterfall will switch to a fully sequential allocation only after a Note Enforcement Notice is served. The Note Trustee at its absolute discretion may, and if so requested in writing by the Eligible Noteholders or by an Extraordinary Resolution of the holders of the Most Senior Class of Notes, shall give a Note Enforcement Notice to the Issuer declaring all the notes to be due and repayable and the Issuer Security enforceable if any of the Events of Default listed under Condition 10 of the notes occurs. Events of Default include non-payment of interest and principal on the Most Senior Class of Notes then outstanding.

The Triumph Loan defaulted at maturity in January 2013 and was transferred into special servicing. The special servicer has entered into a series of stand-still agreements with the borrower and has been marketing the underlying property for sale. The collateral is a large asset used primarily for retail purposes and located in Märkisches Viertel, a mainly residential area in northern Berlin. The property is comprised of one main shopping centre (c.27,000 sqm) with various attached buildings (office c.9,500 sqm and residential c.8,800 sqm). The total vacancy rate is high at 33%, but stable over the last few quarters and mostly related to the residential component (the overall vacancy was 9% at closing).

Moody's value of the collateral remains unchanged from our last review at EUR52 million, which is on as-is-basis and does not take into account any future potential reletting or re-positioning of the asset. Moody's loan-to-value ratios are 119% on the whole loan and 94% on the securitized loan.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of this transaction in the past six months.

Moody's did not use any models, or loss or cash flow analysis, in its analysis.

Moody's did not use any stress scenario simulations in its analysis.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Manuel Rollmann
Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Radostina Atanasova
AVP - Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Andrea Daniels
Associate Managing Director
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Downgrades Class A of EMEA CMBS Notes issued by TAURUS CMBS (PAN-EUROPE) 2006-3 P.L.C.
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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