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Global Credit Research - 06 Aug 2010
Approximately EUR 41 million of Italian CMBS affected.
London, 06 August 2010 -- Moody's Investors Service has today downgraded the following class of
Notes issued by TAURUS CMBS No.2 S.r.l. (amounts
reflect initial outstandings):
EUR16.5M F Notes, Downgraded to Ba3 (sf); previously
on Apr 30, 2010 Baa3 (sf) Placed Under Review for Possible Downgrade
At the same time Moody's has confirmed the following class of Notes
(amounts reflect initial outstandings):
EUR24.7M E Notes, Confirmed at Baa1 (sf); previously
on Apr 30, 2010 Baa1 (sf) Placed Under Review for Possible Downgrade
Moody's has also affirmed the ratings of Class A, Class B,
Class C and Class D Notes. Moody's did not assign a rating
to the Class G Notes of TAURUS CMBS No.2 S.r.l.
EUR239M A Notes, Affirmed at Aaa (sf); previously on Dec 15,
2005 Assigned Aaa (sf)
EUR45.3M B Notes, Affirmed at Aa2 (sf); previously on
Dec 15, 2005 Assigned Aa2 (sf)
EUR24.8M C Notes, Affirmed at Aa3 (sf); previously on
Dec 15, 2005 Assigned Aa3 (sf)
EUR 29M D Notes, Affirmed at A2 (sf); previously on Dec 15,
2005 Assigned A2 (sf)
(1) Transaction Overview
TAURUS CMBS No.2 S.r.l. closed in December
2005 and represents the securitisation of initially four commercial mortgage
loans originated by Merrill Lynch Capital Markets Bank Limited.
At closing, the loans were secured directly or indirectly by first-ranking
legal mortgages over 83 commercial properties located in Italy.
The properties were predominantly office (66.3%) followed
by industrial buildings (28.0%). Since closing,
three (60% of initial pool balance) out of the original four loans
prepaid. In addition, there have been partial prepayments
on the remaining loan (Bernice Loan) in the pool due to property disposals.
On the last interest payment date (IPD) in July 2010, the Bernice
Loan remained in the pool, secured over 41 properties, which
are predominantly office (86.3%) and industrial buildings(14.4%).
The Bernice Loan agreement provides for a step-up in margin payable
starting July 2012. The aggregate outstanding balance was EUR 109.8
million including EUR 10.7 million of undrawn capex facility.
The issuer has invested an amount equal to the undrawn capex facility
in a GIC account. The currently reported Loan-to-Value
(LTV) ratio based on the underwriter (UW) market value is 53.2%
and interest cover ratio is 1.7x. All principal payments
under the Bernice Loan are allocated fully sequential to the notes.
Following the property disposals and subsequent loan prepayments,
the interest received under the Bernice Loan and the GIC account is below
the current weighted average cost of capital of the notes. Therefore,
the available funds cap (AFC) of the unrated Class G Notes has been triggered
since the October 2007 IPD. In addition to the scheduled interest
amounts, the issuer pays a default interest of 1% on any
deferred interest amounts on Class A to Class F.
In April 2010, Moody's placed the Class F and Class E on review
for possible downgrade. The review action was prompted by a partial
shortfall and subsequent deferral of interest of EUR 7,140 on the
Class F Notes on the April 2010 IPD and concerns about potential future
interest shortfalls on the Class F as well as the Class E Notes.
(2) Rating Rationale
Today's rating action follows a detailed re-assessment of
the loan and property portfolio's credit risks and analyses on the
likelihood of scheduled interest payments on the Notes.
The current rating of the Class F Notes is driven by the expected income
shortfalls and potential repayment of deferred interest taking into account
(i) future prepayment scenarios based on the borrower's disposal strategy,
(ii) income from the GIC account, and (iii) the volatility and timing
of issuer level senior costs.
Moody's has analysed different disposal and interest rate scenarios,
in which the recovery rate for Class F Notes ranges between 96%
and 100%, however, there are many uncertainties driving
the final recovery rate, inter alia, the extent of senior
costs, movement of Euribor rates and further property disposals.
The final recovery rate may, however, differ from this range.
Although the interest payments on the Class F Notes are uncertain,
Moody's currently expects the payment of all interest amounts by
the legal final maturity date of the notes as well as the full principal
The Class E Notes face also a limited risk of interest shortfalls.
Interest payments are mainly dependent on (i) further prepayments on the
Bernice Loan and (ii) a further increase in senior costs. Moody's
notes that the senior costs in the transaction have been historically
very volatile, making it difficult to estimate the future senior
ranking costs. However, to suffer interest shortfall,
the senior ranking costs would have to be higher than its historical peak.
Therefore, Moody's considers the probability for Class E Notes
to suffer an interest shortfall to be low, and the rating of the
Class E is driven by the Note-to-Value (NTV) ratio for this
Currently, the Class A, Class B, Class C, Class
D enjoy relatively low Note to Value (NTV) ratios ranging from 10%
to 47%. Moody's notes that further disposals will
benefit the senior classes of notes due to the sequential allocation of
(3) Moody's Analysis
Property Value: Moody's estimates that the LTV of the Loan
is 72%. The LTV is based on Moody's value of EUR 457
million reflecting 7.0% cap rate for the remaining property
pool. Moody's value compares to an UW value of EUR 572 million
as of March 2010.
Refinancing Risk: The Bernice Loan matures in July 2015.
The borrower intends to sell the whole portfolio over the loan term.
Up to July 2012, the loan is only amortised by prepayments following
property disposals and thereafter the borrower will amortise the loan
in seven half yearly instalments. In the analysis, Moody's
has given only limited benefit to the scheduled amortisation and believes
that the refinancing risk of this loan has increased compared to its assessment
at closing. This adjustment of the refinancing risk assessment
is primarily due to the decline in property values and its expectations
that commercial real estate lending markets will only slowly recover from
Term Default Risk: Moody's assessment of the default probability
during the term is linked to the expected DSCR levels, assuming
Euribor increases to the capped level of 4.2% and considering
the lease expiry profile. Due to good coverage levels and a back
loaded lease expiry profile, Moody's assesses the term default risk
of the Bernice Loan to be low.
Overall Default risk: Despite the increased refinancing risk,
the overall default risk of the Loan is low.
Portfolio Loss Exposure: Taking into account the increased refinancing
risk and property value decline, Moody's considers the overall loss
exposure of the transaction to be low.
Concentration Risk. The portfolio securitised in this transaction
exhibits an above average concentration in terms of property types (86.3%
office) and property location (100% Italy).
(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 10 May
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 firstname.lastname@example.org.
To obtain a copy of Moody's New Issue 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 Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
Moody's downgrades the Class F Notes and confirms the Class E Notes issued by TAURUS CMBS No.2 S.r.l.
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