S&P: Banc Of America Commercial Mortgage Trust 2006-3 Class A-M Rating Lowered To 'D (sf)'

S&P Global Ratings today loweredits rating to 'D (sf)' from 'B (sf)' on the class A-M commercial mortgage pass-through certificates from Banc of America Commercial Mortgage Trust 2006-3, a U. S. CMBS transaction (see list).

The downgrade reflects the interest shortfalls outstanding, which we expect will remain outstanding for the foreseeable future. The downgrade also reflects credit support erosion that we anticipate will occur upon the eventual resolution of the trust's sole specially serviced loan, the Fifth Third Center asset ($46.9 million, 33.3%), and the ultimate resolution of the corrected mortgage loan, Rushmore Mall.

According to the March 12, 2018, trustee remittance report, the current monthly interest shortfalls to the certificates totaled $224,068. The shortfalls resulted from $145,157 appraisal subordinate entitlement reduction amounts, $11,757 special servicing fees, and $162,232 interest shortfalls fromthe Rushmore Mall B-note, all of which were partially offset by principal proceeds of $95,077.

TRANSACTION SUMMARY

As of the March 12, 2018, trustee remittance report, the collateral pool balance was $140.9 million, which is 7.2% of the pool balance at issuance. Thepool currently includes two loans (including the Rushmore Mall A-note and B-note as one loan), down from 97 loans at issuance. One of these loans ($46.9million, 33.3%) is with the special servicer.

Excluding the specially serviced loan and the Rushmore Mall B-note ($36.0 million, 25.5%), we calculated a 1.44x S&P Global Ratings debt service coverage (DSC) and 97.6% S&P Global Ratings loan-to-value (LTV) ratio using a 8.25% S&P Global Ratings capitalization rate for the Rushmore Mall A-note.

To date, the transaction has experienced $351.7 million in principal losses, or 17.9% of the original pool trust balance. We expect losses to reach approximately 19.7% of the original pool trust balance in the near term, basedon losses incurred to date and additional loss we expect upon the eventual resolution of the specially serviced loan.

CREDIT CONSIDERATIONS

As of the March 12, 2018, trustee remittance report, one loan in the pool was with the special servicer, KeyBank Real Estate Capital (KeyBank), details of which follow:

The Fifth Third Center loan ($46.9 million, 33.3%) has a total reported exposure of $52.4 million. The loan is secured by a 330,849-sq.-ft. officebuilding in Columbus, Ohio. The loan was transferred to the special servicer in May 2015 due to imminent default. A $30.8 million appraisal reduction amount is in effect against this loan. We expect a significant loss (60% or greater) upon this loan's eventual resolution.

In addition, the transaction's sole performing loan, the Rushmore Mall A-note and B-note, with an aggregate balance of $94.0 million (66.7%), is a correctedloan. The loan had previously defaulted and was subject to modification in October 2014, the terms of which included the bifurcation of the loan into an A-note and a B-note, an extension of the maturity date to February 2019, and interest deferral on the B-note. The loan is secured by a 737,725-sq.-ft. mallin Rapid City, S. D. Anchors at the mall include Sears, At Home, Herberger's, and JC Penney. Sears recently closed at this location, and Herberger's, part of The Bon-Ton Stores Inc., which has recently filed for bankruptcy protection, remains open at this location. Upon resolution, we expect a significant loss on the B-note.
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