Aug 23 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has downgraded Taurus CMBS (Pan-Europe) 2006-3 Limited’s class A and affirmed class B, C and D notes as follows:
EUR33.9m class A (XS0274566420) downgraded to ‘BBBsf’ from ‘Asf’; Outlook Negative
EUR11.9m class B (XS0274569523) affirmed at ‘BBsf’; Outlook Negative
EUR4.2m class C (XS0274570372) affirmed at ‘CCCsf’; Recovery Estimate (RE) RE90%
EUR2.1m class D (XS0274570703) affirmed at ‘CCCsf’; RE0%
The downgrade of the class A reflects the notes’ approaching legal final maturity in May 2015 and some uncertainty over allocation of proceeds upon the Triumph loan workout.
Since Fitch’s previous rating action in September 2012, The K-Berg loan repaid in full at maturity on 8 April 2013 in line with Fitch’s expectations. The Triumph loan secured by a secondary retail complex in Berlin, Germany, is now the only remaining loan in the pool.
The Triumph loan defaulted at its maturity on 30th January 2013 and was transferred to special servicing. The special servicer, Capita Asset Services is currently working towards an orderly sale of the property.
Fitch still expects a full recovery of loan principal. In effect, the transaction documents provide for a modified pro-rata pay down of the recovery proceeds from The Triumph loan. However, in a scenario where losses are incurred, Fitch is of the opinion that the modified pro-rata paydown (50% sequential; 50% pro-rata) is unlikely to be applied since the loss reported by the special servicer should be recorded by the cash manager in the principal deficiency ledger and this will switch the waterfall to sequential. Whilst if recoveries were sufficient to cover the securitised loan amount (EUR52.1m) and the liquidation fee, any further losses will be absorbed by the B-note lender.
However, in a scenario where the recovery proceeds would be just above the securitised loan amount but insufficient to cover the liquidation fee (65 basis points of the recovered amount), the Triumph loan would still be considered as having repaid in full. The sequential trigger would not be breached and therefore all classes of notes would suffer from a principal shortfall stemming from the modified pro-rata paydown. Fitch views this scenario as very unlikely.
Further, the notes’ approaching legal final maturity in less than two years (May 2015) could restrict the servicer’s operational flexibility and weaken its bargaining position with potential purchasers. This is reflected in the class A note downgrade and affirmation of the class B, C and D notes.
A failure to sale the property securing the Triumph loan within the next six months could have a detrimental effect on the notes’ ratings. A performance update report will shortly be available on www.fitchratings.com.