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Rating Action:

Moody's downgrades the Class A EMEA CMBS Notes issued by Taurus CMBS (Pan-Europe) 2006-3 plc

14 Dec 2012

EUR 336 million of CMBS affected

London, 14 December 2012 -- Moody's Investors Service has today downgraded the following class of Notes issued by Taurus CMBS (Pan-Europe) 2006-3 plc (amount reflects initial outstanding):

....EUR336M Class A Notes, Downgraded to A3 (sf); previously on Aug 4, 2011 Downgraded to Aa3 (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 increased loss expectation for the pool since its last review. This is primarily driven by the worse than expected performance of the larger of the two loans remaining in the pool (Triumph Loan -- 71% of the pool).

The key parameters in Moody's analysis are the default probability of the securitised loans (both during the term and at maturity) as well as Moody's value assessment for the properties securing these loans. Moody's derives from those parameters a loss expectation for the securitised pool.

Based on its revised assessment of these parameters, Moody's sees a high likelihood of repayment of the stronger loan from an expected loss perspective (K-Berg Loan -- 29% of the pool) and an increased likelihood of default of the Triumph Loan on its maturity date. Both loans are scheduled to mature in April 2013. Given that the proceeds from a timely repayment of the K-Berg Loan would be allocated on a pro-rata basis to all classes of notes, the lower credit quality of the remaining loan will not be offset by an increase in credit enhancement for the Class A Notes. In Moody's view, the expected loss for the Class A Notes is increasingly dependent on the performance of the Triumph Loan.

Based on its reassessment of the property values, Moody's loan-to-value (LTV) ratio for the Triumph Loan increased from 83% to 101% for the securitised A-loan and from 104% to 122% for the whole loan. With such high leverage, Moody's views that there is a very high chance that the loan will not be refinanced and default on its maturity date. In this case, the special servicer will have only two years until the legal final maturity of the notes to recover the loan principal. The K-Berg Loan continues to perform in line with Moody's expectations, and with an estimated LTV of 81% at maturity, there is overall an only low to medium likelihood of default of the loan on its maturity date.

Should the K-Berg Loan repay and the Triumph Loan default at maturity, the note-to-value ratio for the Class A Notes is expected to increase to 66% from 59% currently.

As a result of loan repayments and prepayments, the Issuer no longer has sufficient interest income available to fully pay its fees and interest due on the notes. Hence, the junior notes including the Class C Notes have been subject to interest deferrals since the February 2012 interest payment date (IPD). In case of a repayment of the K-Berg Loan and the default of the Triumph Loan, the Issuer may increasingly be facing interest shortfalls at the note level. Moody's took into account the increased but still limited risk of interest shortfalls to the Class A Notes in its analysis.

In general, Moody's analysis reflects a forward-looking view of the likely range of commercial real estate collateral performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside an acceptable range of the key parameters such as property value or loan refinancing probability for instance, may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated when the related securities ratings were issued. Even so, a deviation from the expected range will not necessarily result in a rating action nor does performance within expectations preclude such actions. There may be mitigating or offsetting factors to an improvement or decline in collateral performance, such as increased subordination levels due to amortisation and loan re- prepayments or a decline in subordination due to realised losses.

Primary sources of assumption uncertainty are the current stressed macro-economic environment and continued weakness in the occupational and lending markets. Moody's anticipates (i) delayed recovery in the lending market persisting through 2013, while remaining subject to strict underwriting criteria and heavily dependent on the underlying property quality, (ii) strong differentiation between prime and secondary properties, with further value declines expected for non-prime properties, and (iii) occupational markets will remain under pressure in the short term and will only slowly recover in the medium term in line with anticipated economic recovery. Overall, Moody's central global macroeconomic scenario is for a material slowdown in growth in 2012 for most of the world's largest economies fuelled by fiscal consolidation efforts, household and banking sector deleveraging and persistently high unemployment levels. We expect a mild recession in the Euro area.

MOODY'S PORTFOLIO ANALYSIS

Taurus CMBS (Pan-Europe) 2006-3 PLC closed in November 2006 and represents the securitisation of initially seven mortgage loans originated by 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 83% of the initial pool (five loans) repaid or prepaid. The proceeds of the loans were applied on a mix of modified pro-rata and pro-rata basis to the notes. Compared with closing, the Class A subordination level has increased from 25% to 35%, and the balance of the Class A Notes reduced to EUR 49 million from EUR 336 million at closing.

The largest remaining loan in the pool, the Triumph Loan (also known as MZ Holdings, EUR 52.8 million) is backed by a shopping centre, "Märkisches Zentrum", in northern Berlin, Germany. The collateral for the loan also includes approximately 275 residential apartments (8,778 sqm) in an adjacent building which have been highly vacant (95%) and in bad state of repaid since loan origination. The vacancy rate of the total property is also high at 33% half of which is due to the vacant residential units. Since Moody's last review in February 2012, the vacancy rate has overall increased from 31%, especially in the retail area (to 14% from 7%). The net operating income reported by the servicer declined in the same period by 18% to EUR 4.9 million as of October 2012. Moody's net cash flow for the loan is approximately EUR 3.7 million which takes into account the lease rollover profile with 57% of the leases rolling in the next five years and the relatively high cost ratio (app. 30%) at the borrower level due to the high vacancy level. Moody's estimates the market value of the property as EUR 52 million compared with the EUR 73 million underwriter's (U/W) market value from December 2010 (-28%). Taking into account the high leverage of 122% at whole loan level and the lack of sponsor interest in the property, evidenced by limited asset management/investment over the loan term, Moody's views that there is a high likelihood of default of the loan on its maturity date.

The smaller loan, K-Berg (also known as Soudronic, CHF 34.8 million) is secured by an industrial property comprising ten detached light industrial/office properties in Bergdietikon, Switzerland. The property is fully let to Soudronic AG under a lease expiring in December 2020. The property is the headquarter of the company and the tenant has an option to extend the term by a further 10 years. The current U/W whole loan LTV is 77% (68% A-loan LTV) and the current U/W whole loan debt service coverage ratio (DSCR) is stable at approximately 1.15x (1.31x A-loan DSCR). Taking into account the CHF 4.8 million B-Note, the Moody's whole loan LTV at refinancing is 81%. In Moody's view, there is a high change that the loan will be repaid in full.

RATING METHODOLOGY

The principle methodology used in this rating was Moody's Approach to Real Estate Analysis for CMBS in EMEA: Portfolio Analysis (MoRE Portfolio) published in April 2006. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Other factors used in this rating are described in European CMBS: 2012 Central Scenarios published in February 2012.

The updated assessment is a result of Moody's on-going surveillance of commercial mortgage backed securities (CMBS) transactions. Moody's prior assessment is summarised in a press release dated 24 February 2012. The last Performance Overview for this transaction was published on 12 September 2012.

In rating this transaction, Moody's used both MoRE Portfolio and MoRE Cash Flow to model the cash-flows and determine the loss for each tranche. MoRE Portfolio evaluates a loss distribution by simulating the defaults and recoveries of the underlying portfolio of loans using a Monte Carlo simulation. This portfolio loss distribution, in conjunction with the loss timing calculated in MoRE Portfolio is then used in MoRE Cash Flow, where for each loss scenario on the assets, the corresponding loss for the Class A Notes is calculated taking into account the structural features of the notes. As such, Moody's analysis encompasses the assessment of stressed scenarios.

Moody's ratings are determined by a committee process that considers both quantitative and qualitative factors. Therefore, the rating outcome may differ from the model output.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with/with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information.

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 considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Tiffany Putman
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

Deniz Yegenaga
Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Oliver Moldenhauer
Vice President - Senior Analyst
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 the Class A EMEA CMBS Notes issued by Taurus CMBS (Pan-Europe) 2006-3 plc
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