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Global Credit Research - 18 Aug 2010
Johannesburg, August 18, 2010 -- Moody's Investors Service comments on the performance of Taurus CMBS (UK)
2006-2 P.L.C. (amount reflects initial outstanding):
- GBP 364,000,000 Class A Commercial Mortgage Backed
Floating Rate Notes due 2024, rated Aa3; previously on 10 July
2009 downgraded to Aa3.
Moody's does not rate the Class X, Class B, Class C and Class
D Notes issued by Taurus CMBS (UK) 2006-2 P.L.C.
1) Transaction and Portfolio Overview
Taurus CMBS (UK) 2006-2 P.L.C. closed in November
2006 and represents the securitisation of initially eight mortgage loans
originated by Merrill Lynch Commercial Finance Corp., Merrill
Lynch International Bank Limited, London Branch and Merrill Lynch
Capital Corporation. The loans are secured by first-ranking
mortgages over initially 153 commercial properties and 4 residential properties
located across the UK. The properties were predominantly offices
(56.2% based on securitised loan balance) and located within
Greater London (40.5%).
Since closing, there have been some changes in the portfolio composition.
The Ability Loan (10.6% of the initial portfolio balance)
and the Broadway Plaza Loan (7.7%) have prepaid in full
and there have been 15 property disposals under the Mapeley Loan.
Furthermore, the A&A Prescott Loan (4.1% of the
initial portfolio balance) repaid on its maturity date in July 2010.
The remaining loans are not equally contributing to the portfolio:
the largest loan (the Mapeley Loan) represents 49.6% of
the current portfolio balance, while the smallest loan (the Dundee
Loan) represents 3.5%. The current loan Herfindahl
index is 3.0, compared to 4.4 at closing. Following
the prepayments and property disposals, the remaining loans are
secured by 137 properties which are still predominantly office use (66.0%
by securitised loan balance) and 35.9% of the properties
are located in Greater London.
To date, the sequential payment trigger has not been breached.
The proceeds from scheduled amortisation payments, prepayments and
balloon repayments are allocated to the Class A to C Notes in a combination
of modified pro-rata and pro-rata basis, based on
certain loan buckets (Class D only receives principal payments once the
Class A to C Notes have been redeemed). The proceeds from the Ability
Loan prepayment were allocated on a 50% sequential and 50%
pro-rata basis while the proceeds from the Broadway Plaza and A&A
Prescott Loans were allocated fully pro-rata.
The sequential payment trigger is only breached if there is a debit balance
on the Principal Deficiency Ledger or if the cumulative percentage of
loans (calculated by reference to the closing loan balances) which are
subject to a payment default in respect of at least two consecutive loan
payment dates is greater than 25% of the aggregate principal amount
outstanding of the loans at the closing date. Moody's considers
these sequential payment triggers to be particularly weak. Furthermore,
recovery proceeds would also be allocated based on the loan payment allocation
buckets before a breach of the sequential payment triggers. This
is another weakness in the principal waterfall from the senior noteholders'
point of view.
2) Rating Rationale
Today's performance update concludes Moody's annual review for this transaction.
It follows a detailed re-assessment of the portfolio's credit risk.
Hereby, Moody's main focus was on property values, term default
risk, refinancing risk and the anticipated work-out strategy
for defaulted loans.
Since Moody's last review of the transaction in July 2009,
the main changes in the portfolio include: (i) the default of the
St Katherine's Dock Loan (26.5% of the current portfolio
balance) on its maturity date in July 2010 and the subsequent transfer
of the loan into special servicing; (ii) the decrease of the property
portfolio's value under the St Katherine's Dock Loan by an
amount which exceeds Moody's expected value decline assumption in
2009; and (iii) the repayment of the A&A Prescott Loan on its
In its rating review in July 2009, Moody's had already assumed
a very high probability that the St Katherine's Dock Loan would
default on its maturity date. Moody's had further assumed
that the loan would not be enforced immediately but would be worked out
over a period of three to four years. The property portfolio securing
the loan, a property estate adjacent to Tower Bridge in London,
was re-valued in February 2010 with the value decreasing to GBP
116 million compared to GBP 200 million at closing -- a 42%
value decline. This results in a senior loan underwriter (U/W)
LTV of 109% and a whole loan LTV of 143%. Compared
to this, based on Moody's trough value assumption from 2009,
Moody's senior loan LTV was 93% and the whole loan LTV was
The Times Square Loan (11.2% of the current pool balance),
secured by a secondary shopping centre in Surrey, continues to be
in special servicing. The loan was transferred into special servicing
in March 2009 as a result of two events of default: (i) breach of
whole loan ICR covenant; and (ii) breach of other undertakings as
the borrower has not paid property related service charges. This
loan was subsequently accelerated and an LPA Receiver was appointed in
April 2009 to stabilise the performance of the property. The property
was re-valued in April 2010 with the new value being GBP 24.3
million compared to GBP 25.0 million in April 2009. The
current U/W A-loan LTV is 153% and the U/W whole loan LTV
is 191%. There is no interest payment default on the securitised
loan and amortisation is by cash sweep only. The special servicer's
current strategy is to continue to hold and manage the property.
The combined result of the St Katherine's Loan default and decline
in property portfolio value as well as the repayment of the A&A Prescott
Loan has no rating impact on the Class A Notes. Moody's current
weighted average whole loan LTV for the transaction is 100% while
its weighted average senior loan LTV is 84%. In comparison,
the current U/W weighted average whole loan LTV is 87% and the
weighted average senior loan LTV is 72%.
3) Rating Sensitivity
The transaction is currently dominated by an above average loan,
the Mapeley Loan (49.6% of the current pool balance).
The Mapeley Loan is characterised by (i) low current leverage (U/W whole
loan LTV of 35.6% and Moody's through LTV of 54%);
(ii) maturity date in 2021; and (iii) income mainly derived from
a UK government related entity until 2021. In Moody's opinion this
loan is of significantly better quality than the other remaining loans
in this transaction. As already highlighted in 2009 when the Class
A Notes were downgraded, should this loan repay or prepay in full
without the transaction having switched over to a fully sequential pay
structure, Moody's expects more rating sensitivity on the Class
A Notes. Without this loan, the expected loss of the loan
portfolio would be significantly higher. However, a fully
sequential allocation of this loan would increase the credit enhancement
available for the senior notes and limit the impact of the higher expected
A modified pro-rata allocation of a potential Mapeley Loan full
prepayment in combination with pro-rata allocation of recovery
proceeds from the St Katherine's Dock Loan, assuming that
the portfolio is sold at the current U/W market value, could result
in a downgrade action in the region of ten notches for the Class A Notes.
This risk is however mitigated by two main factors:
(i) Moody's does not expect the Mapeley loan to prepay before end-2013.
The loan maturity is in April 2021 with the margin on the loan stepping
up in September 2013. Moody's does not see an incentive for
the borrower to prepay the loan before the interest step-up date.
(ii) By 2013, Moody's expects the payment waterfall to have
switched over to fully sequential. 25% of the pool balance
as of closing needs to be in payment default for this to happen.
The St Katherine's Dock Loan which defaulted on its maturity date
contributed 20% to the closing pool. Moody's does
not expect that the payment default for this loan will be cured.
The Times Square Loan which has been accelerated and not repaid by the
borrower should already be counted as a "payment default"
for the sequential payment trigger definition. This loan contributed
8.5% to the portfolio at closing.
4) Rating Methodology
The principal methodologies used in rating and monitoring the transaction
were "Update on Moody's Real Estate Analysis for CMBS Transaction in EMEA"
June 2005 and "Moody's Updates on its Surveillance Approach for EMEA CMBS"
March 2009, which can be found at www.moodys.com in
the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website. The
last Performance Overview for this transaction was published on 30 April
Further information on Moody's analysis of this transaction is available
on www.moodys.com. In addition, Moody's publishes
a weekly summary of structured finance credit, ratings and methodologies,
available to all registered users of our website, at www.moodys.com/SFQuickCheck.
For updated monitoring information, please contact email@example.com.
To obtain a copy of Moody's Pre-Sale Report on this transaction,
please visit Moody's website at www.moodys.com or contact
our Client Service Desk in London (+44-20-7772 5454).
Frankfurt am Main
MD - EMEA Structured Fin
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Structured Finance Group
Moody's Investors Service South Africa (Pty) Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service South Africa (Pty) Ltd.
Moody's comments on the performance of the EMEA CMBS transaction Taurus CMBS (UK) 2006-2 P.L.C.
2 Maude Street
No Related Data.
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