company registration no: 424421 taurus cmbs (uk) 2006-2 public limited company … · company...

Company Registration No: 424421

TAURUS CMBS (UK) 2006-2 PUBLIC LIMITED COMPANY

DIRECTORS' REPORT AND AUDITED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 JULY 2019


CONTENTS

Page

DIRECTORS AND OTHER INFORMATION 2 - 3

DIRECTORS' REPORT 4 - 6

STATEMENT OF DIRECTORS' RESPONSIBILITIES 7

INDEPENDENT AUDITORS' REPORT 8 - 12

STATEMENT OF COMPREHENSIVE INCOME 13

STATEMENT OF FINANCIAL POSITION 14

STATEMENT OF CHANGES IN EQUITY 15

STATEMENT OF CASH FLOWS 16

NOTES TO THE FINANCIAL STATEMENTS 17 - 28

1


DIRECTORS AND OTHER INFORMATION

DIRECTORS: Lisa HandJonathan Law

COMPANY NUMBER: 424421

COMPANY SECRETARY:

REGISTERED OFFICE:

BANKS:

INDEPENDENT AUDITOR:

SOLICITORS:

Apex IFS Limited (formerly Link IFS Limited)

Up to 9 March 2020

2 Grand Canal Square

Grand Canal Square

Dublin 2

Ireland


Grand Canal Harbour

Dublin 2

Ireland

U.S. Bank Global Corporate Trust Services

(trading name of Elavon Financial Services DAC)

5th Floor, 125 Old Broad Street

London, EC2N 1AR

United Kingdom

AIB Plc

Ashford House

Tara Street

Dublin 2

Ireland

Mazars (Appointed 10 January 2020)

Chartered Accountants and Statutory Audit Firm

Harcourt Centre, Block 3, Harcourt Road, Dublin 2,

Ireland

EisnerAmper Audit Limited (Resigned 20 December

2019)

Chartered Accountants and Statutory Audit Firm

6, The Courtyard Building, Carmanhall Road

Sandyford, Dublin 18, Ireland

Arthur Cox

Earlsfort Centre

Earlsfort Terrace

Dublin 2

Ireland


As from 9 March 2020

Block 5, Irish Life Centre

Abbey Street Lower

Dublin 1

Ireland

2


DIRECTORS AND OTHER INFORMATION - continued

ARRANGER, PRINCIPAL PAYING AGENT AND AGENT BANK:

CORPORATE ADMINISTRATOR:

IRISH LISTING AGENT:

TRUSTEE:

LOAN SERVICER:

SPECIAL SERVICER:

REPORTING AGENT:

LIQUIDITY FACILITY:


Up to 9 March 2020


Grand Canal Square

Dublin 2

Ireland



5th Floor, 125 Old Broad Street

London, EC2N 1AR

United Kingdom

Link Assets Services (Ireland) Limited

Block C, Maynooth Business Campus

Maynooth

Co. Kildare

Ireland



Cherrywood Business Park - Building E

Loughlinstown

Dublin 18

Ireland

Arthur Cox Listing Services Limited

Earlsfort Centre

Earlsfort Terrace

Dublin 2

Ireland



Cherrywood Business Park - Building E

Loughlinstown

Dublin 18

Ireland


As from 9 March 2020

Block 5, Irish Life Centre

Abbey Street Lower

Dublin 1

Ireland

Link Assets Services (UK) Limited

5th Floor, 40 Dukes Place

London, EC3A 7NH

United Kingdom

Lloyds TSB Bank plc

10 Gresham Street

London

EC2V 7AE

3


DIRECTORS' REPORT

PRINCIPAL ACTIVITIES, BUSINESS REVIEW AND FUTURE DEVELOPMENTS

HEDGINGThe Company has entered into a number of derivative transactions in order to mitigate the interest rate risk associated with its Sterling ("£") loanobligations. Further details are disclosed in Note 16 to the financial statements.

TRANSACTIONS INVOLVING DIRECTORSThere were no contracts of any significance in relation to the business of the Company in which the Directors had any interest, as defined in theCompanies Act 2014, at any time during the financial year ended 31 July 2019 or the year ended 31 July 2018, other than those detailed in Notes 7 and18.

CORPORATE ADMINISTRATORApex IFS Limited (formerly Link IFS Limited) (“Apex”), the Corporate Administrator, provides administration services to the Company at arm’s lengthcommercial rates.

The Directors present their report and the audited financial statements of Taurus CMBS (UK) 2006-2 Public Limited Company (the ''Company'') for the year ended 31 July 2019.

On 21 November 2006 the Company issued £364,000,000 Class A Commercial Mortgage Backed Floating Rate Notes due 2024, £50,000 Class XCommercial Mortgage Backed Variable Rate Note due 2024, £40,100,000 Class B Commercial Mortgage Backed Floating Rate Notes due 2024,£36,000,000 Class C Commercial Mortgage Backed Floating Rate Notes due 2024 and £7,000,000 Class D Commercial Mortgage Backed Floating RateNotes due 2024 (together the "Notes"). The terms and conditions of the Notes are set out in the offering circular. The Directors do not anticipate anychanges in the nature of the Company's business activities.

No dividends were declared or paid in respect of the result of 2019 (2018: nil). The results for the financial year and state of affairs of the Company are set out in the Statement of Comprehensive Income and Statement of Financial Position on pages 14 and 15 respectively.

ACCOUNTING RECORDS

RESULTS AND DIVIDENDS FOR THE YEAR

The Notes are listed on the Euronext Dublin and traded on its regulated market. The Notes have been assigned respective ratings by Standard & Poor'sRating Services ("S & P"), Moody’s Investor Services Ltd (“Moody’s”) and Fitch Ratings Ltd ("Fitch"), collectively known as the ("Rating Agencies"). Furtherdetails are disclosed in Note 16 (a) to the financial statements.

The Directors believe that they have complied with the requirements of sections 281 to 285 of the Companies Act 2014 with regard to keeping adequateaccounting records by employing accounting personnel with the appropriate expertise and by providing adequate resources to the financial function. Theaccounting records of the Company are maintained at Block 5, Irish Life Centre,Abbey Street Lower, Dublin 1, Ireland.

PRINCIPAL RISKS AND UNCERTAINTIESThe principal risks and uncertainties facing the Company relate to the financial instruments held by the Company. The main risks the Company hasexposure to are credit risk, liquidity risk, market risk and operational risk. Information on how the Company manages these risks are set out in note 16 tothe financial statements.

POLITICAL DONATIONSThe Company did not make any political donations during the current or prior year.

The net proceeds of the Notes have been used by the Company to acquire from Merrill Lynch Capital Corporation its right, title and interest in and to eightcommercial mortgage backed loans originated by Merrill Lynch International Bank Limited, London Branch, Merrill Lynch Capital Corporation and MerrillLynch Commercial Finance Corporation. Together with the loans, the Company acquired the related interests in certain mortgages and other collateralsecurity in addition to the Merrill Lynch Capital Corporation interests in certain swap transactions.

During the year under review, the Company made the following partial redemptions of notes:

Class A: £7,986,966 (2018: £2,312,048)

KEY PERFORMANCE INDICATORSDuring the year:- The Company made a profit before tax of £550 (2018: £533);- The net (loss)/gain on financial liabilities at fair value through profit or loss ("FVTPL") amounted to NIL (2018: NIL);- The net gain/(loss) on financial assets at FVTPL amounted to NIL (2018: NIL);

As at 31 July 2019:- The fair value of Notes issued by the Company amounted to £105,854,438 (2018: £111,866,130);

DIRECTORS, SECRETARY AND THEIR INTERESTThe directors are listed on page 2 and the directors have served as directors for the entire year. The directors and secretary who held office on 31 July2019 did not hold any shares in the Company at that date or at any time during the year or in the prior year.

4


DIRECTORS' REPORT - continued

CORPORATE GOVERNANCE STATEMENT

The Articles of Association provide that the directors may exercise all the powers of the Company to borrow money, to mortgage or charge its undertakingproperty of any part thereof and may delegate these powers to the Arranger.

INDEPENDENT AUDITOREisnerAmper Audit Limited, Chartered Accountants & Statutory Audit Firm, resigned from their office in accordance with Section 383(2) of the CompaniesAct 2014 following the 31 July 2018 audit. Mazars, Chartered Accountants and Statutory Audit Firm, were appointed on the 10th of January 2020, asauditors for the year ended 31 July 2019.

Significant events affecting the Company since the year end are detailed in Note 19.SUBSEQUENT EVENTS

IntroductionThe Company is subject to and complies with Irish Statute comprising the Companies Act 2014 and the Listing rules of the Euronext Dublin. TheCompany does not apply additional requirements in addition to those required by the above. Each of the service providers engaged by the Company issubject to their own corporate governance requirements.

Financial Reporting Process The Board is responsible for establishing and maintaining adequate internal control and risk management systems of the Company in relation to thefinancial reporting process. Such systems are designed to manage rather than eliminate the risk of failure to achieve the Company’s financial reportingobjectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

The Board has established processes regarding internal control and risk management systems to ensure its effective oversight of the financial reportingprocess. These include appointing the Administrator to maintain the accounting records of the Company independent of the Arranger and the LoanServicer. The Administrator is contractually obliged to assist the Company to maintain proper books and records as required by the CorporateAdministration agreement. To that end the Administrator performs reconciliations of its records to those of the Arranger and the Loan Servicer. TheAdministrator is also contractually obliged to prepare for review and approval by the Board the annual report including financial statements intended to givea true and fair view.

The Board evaluates and discusses significant accounting and reporting issues as the need arises. From time to time the Board also examines andevaluates the Administrator’s financial accounting and reporting routines and monitors and evaluates the external auditors’ performance, qualifications andindependence. The Administrator has operating responsibility for internal control in relation to the financial reporting process and the Administrator’s reportto the Board.

Risk AssessmentThe Board is responsible for assessing the risk of irregularities whether caused by fraud or error in financial reporting and ensuring the processes are inplace for the timely identification of internal and external matters with a potential effect on financial reporting. The Board has also put in place processes toidentify changes in accounting rules and recommendations and to ensure that these changes are accurately reflected in the Company’s financialstatements.

Control ActivitiesThe Administrator maintains control structures to manage the risks which the Board judges to be significant for internal control over financial reporting.These control structures include appropriate division of responsibilities and specific control activities aimed at detecting or preventing the risk of significantdeficiencies in financial reporting for every significant account in the financial statements and the related notes in the Company’s annual report.

MonitoringThe Board has an annual process to ensure that appropriate measures are taken to consider and address the shortcomings identified and measuresrecommended by the independent auditor.

Given the operations performed by the Administrator, the Board has concluded that there is currently no need for the Company to have a separate internalaudit function in order for the Board to perform effective monitoring and oversight of the internal control and risk management systems of the Company inrelation to the financial reporting process.

Capital StructureNo person has any special rights of control over the Company’s share capital. There are no restrictions on voting rights.

With regard to the appointment and replacement of Directors, the Company is governed by its Articles of Association, Irish Statute comprising theCompanies Act 2014 and the Listing Rules of the Euronext Dublin. The Articles of Association themselves may be amended by special resolution of theshareholders.

Powers of DirectorsThe Board is responsible for managing the business affairs of the Company in accordance with the Articles of Association. The Directors may delegatecertain functions to the Administrator and other parties, subject to the supervision and direction by the Directors. The Directors have delegated the day today administration of the Company to the Administrator.

The instrument of transfer of any share shall be executed by or on behalf of the transferor and, in cases where the share is not fully paid, by or on behalf ofthe transferee. The transferor shall be deemed to remain the holder of the share until the name of the transferee is placed on the register in respectthereof. The Directors in their absolute discretion and without assigning any reason therefore may decline to register any transfer of a share. If theDirectors refuse to register a transfer they shall, within two months after the date on which the transfer was lodged with the Company, send to thetransferee notice of the refusal.

5


DIRECTORS' REPORT - continued

•

•

•

Statement on relevant audit informationIn the case of each of the persons who are directors at the time this report is approved in accordance with section 332 of Companies Act 2014:

(a) so far as each director is aware, there is no relevant audit information of which the Company’s statutory auditors are unaware, and(b)

On behalf of the Board

Director DirectorLisa Hand Jonathan Law

Date: _________________ Date: _________________

Drafted and reviewed a Compliance Policy Statement, setting out the Company's policies (that, in the Directors' opinion, are appropriate to the Company) respecting compliance by the Company with its relevant obligations;

Put in place appropriate arrangements and structures that are, in the directors' opinion, designed to secure material compliance with the Company's relevant obligations; and

Directors Compliance Policy Statement

Have during the financial year conducted a review of the aforementioned arrangements and structures.

Audit CommitteeThe Company has not established an audit committee under section 167 of the Companies Act 2014. The sole business of the Company relates to theissuing of asset-backed securities. It also enters into certain derivatives to hedge out interest rate exposure arising on investment securities and debtsecurities issued mismatches. Under S115 (10) of the European Union (Statutory Audits) (Directive 2006/43/EC), as amended by directive 2014/56/EU,and Regulation (EU) no. 537/2014 regulations 2016 (S.1 312/2016 - the EU Audit Directive), such a Company may avail itself of an exemption from therequirement to establish an audit committee.

Given the functions performed by the Administrator and the limited recourse nature of the securities issued by the Company, the Board of Directors hasconcluded that there is currently no need for the Company to have a separate audit committee in order for the Board to perform effective monitoring andoversight of the internal control and risk management systems of the Company in relation to the financial reporting process. Accordingly the Company hasavailed itself of the exemption under 10 (c) of the Regulations.

each director has taken all the steps that he or she ought to have taken as a director in order to make himself or herself aware of any relevant audit information and to establish that the Company’s statutory auditors are aware of that information.

The Directors acknowledge that they are responsible for securing the Company's compliance with its relevant obligations as defined in section 225(2) ofthe Companies Act 2014, and hereby confirm that they have completed the following:

6

27 April 202027th April 2020

lhand

Lisa Hand


STATEMENT OF DIRECTORS' RESPONSIBILITIES


Date: _________________ Date: _________________

The Directors are responsible for preparing the Directors’ Report and financial statements in accordance with applicable law and FRS 102 “the FinancialReporting Standard applicable in the UK and Republic of Ireland” issued by the Financial Reporting Council and promulgated by the CharteredAccountants Ireland ("FRS 102").

Irish company law requires the directors to prepare financial statements for each financial year. Under the law, the Directors have elected to prepare thefinancial statements in accordance with FRS 102. Under company law, the directors must not approve the financial statements unless they are satisfiedthat they give a true and fair view of the assets, liabilities and financial position of the Company as at the financial year end date and of the profit or loss ofthe Company for that financial year and otherwise comply with the Companies Act 2014.

In preparing these financial statements the Directors are required to:

• select suitable accounting policies for the company financial statements and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state whether the financial statements have been prepared in accordance with FRS 102, identify those standards, and note the effect and the reasons forany material departure from those standards; and

• prepare the financial statements on a going concern basis unless it is inappropriate to presume that the company will continue in business.

The Directors are responsible for ensuring that the Company keeps or causes to be kept adequate accounting records which correctly explain and recordthe transactions of the Company, enable at any time the assets, liabilities, financial position and profit and loss of the Company to be determined withreasonable accuracy, enable them to ensure that the financial statements and Directors’ Report comply with the Companies Act 2014 and enable thefinancial statements to be audited. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for theprevention and detection of fraud and other irregularities.

Approved by the Board and signed on behalf of the Board by:

7

27 April 202027th April 2020

lhand

Lisa Hand

__________________________________________________________________________________

INDEPENDENT AUDITORS’ REPORT TO THE

MEMBERS OF TAURUS CMBS (UK) 2006-2 PUBLIC LIMITED COMPANY

8

Report on the audit of the financial statements

Opinion

We have audited the financial statements of Taurus CMBS UK 2006-2 Public Limited Company (‘the Company’) for the year ended 31 July 2019, which comprise the statement of comprehensive income, the statement of financial position, the statement of changes in equity, the statement of cash flows and the related notes to the financial statements, including the summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is the Companies Act 2014 and FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”.

In our opinion, the financial statements:

• give a true and fair view of the assets, liabilities and financial position of the Company as at 31 July 2019 and of its profit for the year then ended;

• have been properly prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”; and

• have been properly prepared in accordance with the requirements of the Companies Act 2014.

Basis for opinion

We conducted our audit in accordance with (ISAs (Ireland) and applicable law. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report.

We are independent of the Company in accordance with ethical requirements that are relevant to our audit of financial statements in Ireland, including the Ethical Standard as applied to public interest entities issued by the Irish Auditing and Accounting Supervisory Authority (IAASA), and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which ISAs (Ireland) require us to report to you where:

• the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

• the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

__________________________________________________________________________________



9

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud). The matters, described below, had the greatest impact on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team. This was addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and therefore we do not provide a separate opinion on this matter.

Key audit matter How our audit addressed this key audit matter

Valuation of financial instruments at fair value

Taurus CMBS (UK) 2006-2 Plc’s financial position depends on, to a significant degree, the valuation of financial instruments measured at FVTPL, which are based on management judgement and estimation. The valuation techniques and methodologies applied can be complex due to unobservable inputs and any error in the valuation of a financial instrument can have a significant impact on the financial statements. The Company’s financial instruments at fair value are notes listed on Euronext Dublin, commercial mortgage receivables and basis rate and interest rate swaps.

The Company engaged an external independent expert to support its valuation process in respect to the commercial mortgage receivables and the listed notes.

Refer to pages 17-19 (accounting policies) and notes 9,12, 13 & 16 (financial disclosures).

• Obtained an understanding of the valuation methodologies;

• Reviewed the fair value methodologies applied by the directors and assess the underlying assumptions for reasonableness;

• Reviewed the valuation report prepared by the external expert; assessed the reasonableness of the methodology and assumptions, recalculated the fair value range provided and agreed inputs to supporting documentation;

• Recalculated the fair value of the mortgage receivables based on the valuation policy applied and assessed whether the valuation was within a reasonable range of estimates;

• Recalculated the fair value of the Company’s notes issued based on the valuation policy applied;

• Recalculated the fair value of the Company’s basis rate and interest rate swaps based on supporting information; and

• Assessed of the appropriateness of the related disclosures in the financial statements.

Based on the procedures performed we consider the valuation of the Company’s financial instruments at fair value to be reasonable.

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10

Our application of materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall materiality £1,096,227

How we determined it 1% of total assets

Rationale for benchmark applied In determining our materiality, we considered those financial metrics which we believed to be relevant and concluded that total assets was the most relevant benchmark. We applied this benchmark because in our view this is the metric against which the recurring performance of the Company is commonly measured by its stakeholders.

Reporting threshold We agreed with the Board of Directors that we would report to them misstatements identified during our audit in excess of £32,887 as well as misstatements below that amount that, in our opinion, warranted reporting for qualitative reasons.

An overview of the scope of our audit

We tailored the scope of our audit to ensure that we performed sufficient work to be able to give an opinion on the financial statements as a whole, taking into account the Company’s accounting processes and controls, and the industry in which it operates. In establishing the overall approach to our audit, we assessed the risk of material misstatement, taking into account the nature, likelihood and potential magnitude of any misstatement. We used the outputs of our risk assessment, our understanding of the Company, and also considered qualitative factors in order to ensure that we obtained sufficient coverage across all financial statement line items.

Other information

The Directors are responsible for other information. This other information comprises of information included in the annual report other than the financial statements and our auditors’ report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether this other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

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11

Corporate governance statement

In addition, we report, in relation to information given in the Corporate Governance Statement that:

• based on knowledge and understanding of the company and its environment obtained in the course of our audit, no material misstatements in the information identified above have come to our attention;

• based on the work undertaken in the course of our audit, in our opinion o The description of the main features of the internal control and risk management systems in relation to the

process for preparing the financial statements, and information relating to voting rights and other matters required by the European Communities (Takeover Bids Directive 2004/25/EC) Regulations 2006 and specified by the Companies Act 2014 for our consideration, are consistent with the financial statements and have been prepared in accordance with the Companies Act 2014, and;

o The Corporate Governance Statement contains the information required by the Companies Act 2014.

Opinions on other matters prescribed by the Companies Act 2014

Based solely on the work undertaken in the course of the audit, we report that:

• in our opinion, the information given in the Directors’ Report is consistent with the financial statements; and • in our opinion, the Directors’ Report has been prepared in accordance with the Companies Act 2014.

We have obtained all the information and explanations which we consider necessary for the purposes of our audit. In our opinion, the accounting records of the Company were sufficient to permit the financial statements to be readily and properly audited and the financial statements are in agreement with the accounting records.

Matters on which we are required to report by exception

Based on the knowledge and understanding of the Company and its environment obtained during the course of the audit, we have not identified any material misstatements in the Directors’ Report.

The Companies Act 2014 requires us to report to you if, in our opinion, the disclosures of Directors’ remuneration and transactions required by Sections 305 to 312 of the Act are not made. We have nothing to report in this regard.

Respective responsibilities

Responsibilities of Directors for the financial statements

As explained more fully in the Statement of Directors’ Responsibilities set out on page 7, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal controls as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

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12

Auditors’ responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion.

Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (Ireland) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the IAASA’s website at: http://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8a98202dc9c3a/Description of auditors responsibilities for audit.pdf.

This description forms part of our Auditors’ Report.

Other matters which we are required to address

We were appointed by the Board of Directors on 10 January 2020 to audit the financial statements for the year ended 31 July 2019 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm as auditors of Taurus CMBS (UK) 2006-2 Public Limited Company is 1 year, covering the year ending 31 July 2019.

The non-audit services prohibited by IAASA’s Ethical Standard is located at https://www.iaasa.ie/getmedia/cc2cfaa6-ed87-4a1c-927a-af34c217b5b9/Ethical-Standard-for-Auditors-Ireland-

2016_1. No non-audit services prohibited by the standard were performed during the period under review.

Our opinion is consistent with our report to the Board of Directors we are required to provide in accordance with ISA (Ireland) 260.

The purpose of our audit work and to whom we owe our responsibilities

Our report is made solely to the Company’s members, as a body, in accordance with Section 391 of the Companies Act 2014. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.

__________________________ Patrick Gorry for and on behalf of Mazars Chartered Accountants & Statutory Audit Firm Harcourt Centre, Block 3, Harcourt Road, Dublin 2.

Date: 28 April 2020


for the year ended 31 July 2019 Year

ended

Year

ended Note 2019 2018

GBP GBP

Interest income and similar income 4 6,056,530 6,701,837 Net (loss)/gain on financial liabilities at FVTPL 5 - - Interest expense and similar charges 6 (5,422,052) (6,094,936)

OPERATING INCOME - CONTINUING OPERATIONS 634,478 606,901

Operating expenses (633,928) (606,368)

PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 550 533

Tax on profit from ordinary activities 8 (138) (133)

PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 412 400

Other comprehensive income - -

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 412 400

STATEMENT OF COMPREHENSIVE INCOME

All items dealt with in arriving at the result for the year ended 31 July 2019 or in the prior year related to continuing operations.

The Company has no recognised gains or losses in the financial year or in the prior year other than those dealt with in the Statement of ComprehensiveIncome above.

The notes to the financial statements form an integral part of these financial statements.

13


STATEMENT OF FINANCIAL POSITIONas at 31 July 2019 2019 2018

Note GBP GBP

NON CURRENT ASSETSFinancial assets at FVTPL 9 109,153,346 117,140,313

CURRENT ASSETSCash and cash equivalents 312,737 692,589

Other receivables 10 156,664 228,033

469,401 920,622

CREDITORS: (Amounts falling due within one year) 11 (416,947) (868,581)

NET CURRENT ASSETS 52,454 52,041

CREDITORS: (Amounts falling due more than one year)Financial liabilities at FVTPL 12 (105,854,438) (111,866,130) Derivative financial instruments 13 (3,320,075) (5,295,349)

NET ASSETS 31,287 30,875

CAPITAL AND RESERVESShare Capital presented as equity 14 26,992 26,992 Retained earnings 15 4,295 3,883

SHAREHOLDERS' FUNDS 31,287 30,875

- -


Date: _________________ Date: _________________

The financial statements were approved by the Board and authorised for issue on ________ 2020 and signed on its behalf by:


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Lisa Hand


for the year ended 31 July 2019

Called up Retainedshare capital Earnings Total

GBP GBP GBP

Balance at 1 August 2018 26,992 3,883 30,875

Total comprehensive result for the year - 412 412

Balance at 31 July 2019 26,992 4,295 31,287

Called up Retainedshare capital Earnings Total

GBP GBP GBP

Balance at 1 August 2017 26,992 3,483 30,475

Total comprehensive result for the year - 400 400

Balance at 31 July 2018 26,992 3,883 30,875

STATEMENT OF CHANGES IN EQUITY


15


for the year ended 31 July 2019

2019 2018 Note GBP GBP

CASH FLOW FROM OPERATING ACTIVITIESProfit on ordinary activities before taxation 550 533

Adjustments For:

Fair value loss on notes at FVTPL 5 1,975,274 4,030,632 Fair value gain on financial derivatives at FVTPL 5 (1,975,274) (4,030,632) Increase/(Decrease) in other receivables 10 71,369 (17,725) (Decrease)/Increase in creditors 11 (451,634) 371,399 Corporation tax paid 8 (138) (133)

NET CASH FLOW (USED IN)/FROM OPERATING ACTIVITIES (379,853) 354,074

CASH FLOWS FROM INVESTING ACTIVITIESLoan receipts and cash movement on financial assets 9 7,986,967 2,312,048

NET CASH FLOW FROM INVESTING ACTIVITIES 7,986,967 2,312,048

CASH FLOWS FROM FINANCING ACTIVITIESRepayment of financial liabilities 12 (7,986,966) (2,312,048)

NET CASH USED IN FINANCING ACTIVITIES (7,986,966) (2,312,048)

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (379,852) 354,074

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR 692,589 338,515

CASH AND CASH EQUIVALENTS AT YEAR END 312,737 692,589

- - The notes to the financial statements form an integral part of these financial statements.

STATEMENT OF CASH FLOWS

16


1 CORPORATE INFORMATION

2 BASIS OF PREPARATION

(a) Basis of preparation and accounting convention

(b) Basis of measurement

(d) Use of estimates and judgements and key sources of estimation uncertainty

(c) Functional and presentation currencyItems included in the financial statements of the Company are measured in the currency of primary economic environment in which the Companyoperates (the "functional currency"). The financial statements of the Company are presented in Sterling ("£"), which is the Company's functionaland presentation currency.

Foreign currency translationTransactions in currencies other than Sterling are recorded at the rates of exchange prevailing on the dates of the transactions.

At each Balance Sheet date, monetary items denominated in foreign currency are retranslated at the rates prevailing at the Balance Sheet date.Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates ofmonetary items that are denominated in foreign currencies are recognised in profit or loss in the year. Foreign exchange gains and losses onfinancial assets and financial liabilities at fair value through profit or loss ("FVTPL") are included in the net fair value gain/(loss). Net foreignexchange gains or losses on monetary financial assets and liabilities other than those classified as at FVTPL are included in the line item foreignexchange gain/(loss).

Total profit/(loss) before tax from operating in this segment amount to £550 (2018: £533)

The requirements for segmental reporting puts emphasis on the "management approach" to reporting on operating segments. An operatingsegment is a component of the Company that engages in business activities from which it may earn revenue and incur expenses. The Companyhas only one operating segment.

Financial results of the operating segment encompass total assets of £109,622,747 and total liabilities of £109,591,460 (2018: £118,060,935 and£118,030,060 respectively).

The preparation of the financial statements in conformity with FRS 102 requires management to make judgements, estimates and assumptions thatmay affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates andassociated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances,the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from othersources. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in whichthe estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current andfuture periods.

Information in relation to significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the mostsignificant effect on the amount recognised in the financial statements are described in note 16 (i), relating to the determination of fair values.

(e) Segmental reporting

The Company is a limited liability company incorporated under the laws of Ireland with company number 424421. The Company was incorporatedon 21 November 2006 and is domiciled in the Republic of Ireland. The registered office of the Company is Block 5, Irish Life Centre,Abbey StreetLower, Dublin 1, Ireland.

The majority of the Company’s financial instruments are classified in categories that require measurement at fair value through profit or loss, withbasis for arriving at this position being set out below.

The financial statements have been prepared on a going concern basis and in accordance with the historical cost convention except for assets andliabilities stated at fair value as explained below. The financial reporting framework that has been applied in their preparation is the Companies Act2014 and FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) as issued by the FinancialReporting Council.

Based upon the Company's financial position, the directors are satisfied that the going concern basis of accounting is appropriate.

NOTES TO THE FINANCIAL STATEMENTS

The Company is a special purpose company that has been established to acquire and hold certain financial assets (“Charged Assets”) and issuedebt securities to investors, enter into Swap Agreements and perform its obligations and exercise its rights thereunder and enter into other relatedtransactions. As at 31 July 2019, five series of notes were in issue all of which were listed on the main securities market of the Euronext Dublin.

The Company has no employees and administration services required are contracted to a third party.

In accordance with FRS 102, the Company has opted to apply the recognition and measurement requirements of IAS 39 Financial Instruments:Recognition and Measurement to its financial instruments that fall in scope of Sections 11 and 12 of FRS 102. In addition, the presentation anddisclosure requirements of FRS 102 have been applied as required by that latter standard.

The financial statements have been prepared on the historical cost basis except for the following items which are measured at fair value throughthe profit or loss:• Investments in investment securities have been designated at fair value through profit or loss;• Derivative financial instruments are measured at fair value through profit or loss; and• Investment securities issued designated as at fair value through profit or loss are measured at fair value.

Interest income earned on financial assets from operating in this segment amounted to £6,056,530 (2018: £6,701,837). The interest earned relatesto underlying assets held in the UK. Refer to Note 9 for further information on the investment securities held.

Interest expense incurred on debt securities issued from operating in this segment amounted to £2,897,707 (2018: £2,610,691). The debt securitiesrelate to Notes issued in Ireland listed on the Euronext Dublin. Refer to Note 12 for further information and analysis of the debt securities.

17


3 SIGNIFICANT ACCOUNTING POLICIES

The Company classifies its investment securities and notes issued as financial assets and liabilities at FVTPL. These financial assets and financialliabilities are either held for trading or designated by the Directors at FVTPL at inception.

Financial assets or financial liabilities held for trading are those acquired or incurred principally for the purpose of selling or repurchasing in the nearfuture. All derivatives are included in this category.

Financial assets and financial liabilities designated at FVTPL at inception are those that are managed and their performance evaluated on a fairvalue basis. Information about these financial assets and liabilities are evaluated by the Directors on a fair value basis together with other relevantfinancial information.

Financial assets and liabilities that are not at FVTPLFinancial assets that are not at FVTPL and are not quoted in an active market include cash at bank, cash collateral and other assets, and arecategorised as loans and receivables for measurement purposes. Financial liabilities that are not at fair value through profit or loss include accruedexpenses, funds due back to Swap Counterparty and other liabilities and are categorised as other liabilities for measurement purposes.

Financial assets and liabilities at FVTPL

OffsettingFinancial assets and liabilities are set off and the net amount presented in the Statement of Financial Position when, and only when, the Companyhas a legal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arising from a groupof similar transactions.

Fair Value Measurement PrinciplesThe determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations for financialinstruments traded in active markets, where these are available. For all other financial instruments fair value is determined by using valuationtechniques.

Refer to note 16(j) for further detail


CategorisationA financial asset or financial liability at fair value through profit or loss is a financial asset or liability that is designated as at FVTPL or classified asheld-for-trading.

The Company has designated all the investment securities and Notes issued, as at fair value through profit or loss. Derivative financial instrumentsare carried at fair value through profit or loss.

The accounting policies set out below have been applied consistently to all periods presented in these financial statements.

(a) Financial instruments

The financial instruments held by the Company include the following:

• Investment securities held• Derivative financial instruments• Notes issued• Other receivables and payables

Financial assets and liabilities at FVTPL are stated at fair value, with any gain or loss arising from changes in fair value being recognised in thestatement of Comprehensive Income. Financial assets and liabilities at FVTPL are recognised at FVTPL at inception.

Recognition and measurementThe Company initially recognises all financial assets and liabilities at fair value adjusted for initial direct costs in the case of instruments to becarried subsequently at amortised cost on the trade date, which is the dated on which the Company becomes a party to the contractual provisionsof the instruments. From trade date, any gains or losses arising from changes in the fair value of the financial assets or financial liabilities at fairvalue through profit or loss are recorded through profit or loss in the statements of comprehensive income.

DerecognitionThe Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receivethe contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial assetare transferred. Any interest in transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability.

The Company derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

18


3 SIGNIFICANT ACCOUNTING POLICIES - continued

(d) Cash at bank

Cash at bank includes cash held in the bank and deposit repayable without notice and without penalty. Cash at bank is carried at cost in theStatement of Financial Position.

(g) Net gain/ loss on derivative financial instruments measured at fair value through profit or loss

Net gain/ loss on derivative financial instruments measured at FVTPL relates to the fair value movements on derivatives held by the Company andincludes realised and unrealised fair value changes, settlements and foreign exchange differences.

(h) Net gain/loss on Notes issued designated as at fair value through profit or loss

Net gain/loss on debt securities issued, designated at FVTPL, relates to Notes issued and includes financing costs, unrealised fair value changesand foreign exchange differences.

(i) Interest income and interest expenses

(c) Share Capital

Share Capital is issued in Euro. Dividends are recognised as a liability in the period in which they are approved.

To the extent that this definition is not met, the proceeds of issue are classified as a financial liability.

(b) Financial liability and equity

• they include no contractual obligations upon the Company to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Company; and• where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the Company exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.


Financial assets and liabilities designated at FVTPL are recorded at fair value. Changes in fair values are recognised through the profit and lossaccount together with dividends and interest receivable and payable.

Income and expenditure is recognised on an accruals basis.

(e) Foreign currency transactions

Transactions in foreign currencies are translated to the functional currency of the Company at exchange rates at the dates of the transactions.Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency using theexchange rate at that date. Non monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated tothe functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation arerecognised through profit or loss in the Statement of Comprehensive Income and are included under net gains / (losses) from investment securities,derivatives and debt securities issued as appropriate.

(f) Net gain/loss from investment securities designated as at fair value through profit or loss

Net gain/loss on investment securities designated at fair value relates to investment securities and includes realised income, unrealised andrealised fair value changes and foreign exchange differences.

(j) Operating income and expenses

Other income and expenses are accounted for on an accruals basis.

The financial instruments issued by the Company are treated as equity (i.e. forming part of shareholders' funds) only to the extent that they meet thefollowing two conditions:

19


3 SIGNIFICANT ACCOUNTING POLICIES - continued

4 INTEREST INCOME AND SIMILAR INCOME2019 2018 GBP GBP

Interest income on financial assets 6,056,530 6,701,837

6,056,530 6,701,837

5 NET (LOSS)/GAIN ON FINANCIAL LIABILITIES AT FVTPL2019 2018 GBP GBP

Fair value loss on Notes at FVTPL (1,975,274) (4,030,632) Fair value gain on financial derivatives at FVTPL 1,975,274 4,030,632

- -

6 INTEREST EXPENSE AND SIMILAR CHARGES2019 2018 GBP GBP

Interest expense on notes 2,897,707 2,610,691 Interest expense on financial derivatives 2,577,434 3,432,809 Interest expense on liquidity facility and cash collateral (413) 4,463 Elimination of point in time profit/(loss) (52,206) 45,756 Foreign exchange (gain)/loss (470) 1,217

5,422,052 6,094,936

7 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION2019 2018 GBP GBP

The profit on ordinary activities before taxation is stated after charging the following expense:

Auditors' remuneration 23,893 32,099Directors' remuneration 2,664 2,677Foreign exchange (gain)/loss (470) 1,217

26,087 35,993

Auditors' remuneration for work carried out for the Company is as follows:2019 2018 GBP GBP

Statutory audit fees 20,615 29,904 Tax compliance fees 2,520 2,195

23,135 32,099

(k) Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the profit or loss expected to the extent that it relatesto items recognised directly in equity or other comprehensive income, in which case it is recognised directly in equity or other comprehensiveincome.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted atthe balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on timing differences which arise from the inclusion of income and expenses in tax assessments in periods different fromthose in which they are recognised in the financial statements. Deferred tax is not recognised on permanent differences arising because certaintypes of income or expense are non-taxable or are disallowable for tax or because certain tax charges or allowances are greater or smaller than thecorresponding income or expense.

Deferred tax is measured at the tax rate that is expected to apply to the reversal of the related difference, using tax rates enacted or substantivelyenacted at the balance sheet date. Deferred tax balances are not discounted.

Unrelieved tax losses and other deferred tax assets are recognised only to the extent that is it probable that they will be recovered against thereversal of deferred tax liabilities or other future taxable profits.


The Company is administered by Apex IFS Limited and has no employees (2018: Nil). The directors are also the key management personnel of theCompany.

20


8 TAX ON PROFIT FROM ORDINARY ACTIVITIESAnalysis of tax charge in the year

2019 2018 GBP GBP

Profit on ordinary activities before taxation 550 533

Corporation tax based on a standard rate of tax of 25% 138 133 Taxation paid during the year 138 134

Corporation tax receivable 13 13

9 FINANCIAL ASSETS AT FVTPL

9.1 Financial information

2019 2018 GBP GBP

Investment securities at start of the year 117,140,313 119,452,361 Repaid during the year (7,986,967) (2,312,048)

Investment securities at end of year 109,153,346 117,140,313

9.1 Financial information

GBP Maturity date

The Mapeley Loan 7,986,967 20 April 2021

The fair value of this loan was as follows:

10 OTHER RECEIVABLES2019 2018 GBP GBP

Interest receivable on financial assets at FVTPL 137,182 209,507 Other receivables 19,463 18,507 Corporation tax recoverable 13 13

6 6

156,664 228,033

11 CREDITORS: (AMOUNTS FALLING DUE WITHIN ONE YEAR)2019 2018 GBP GBP

Interest payable on notes designated at FVTPL 60,926 69,066 Interest payable on financial derivatives held for trading 51,529 86,004 Cash collateral payable - 370,413 Accruals 96,269 82,670 Amounts due to Arranger re point in time profit 208,223 260,428

416,947 868,581

The Company will continue to be taxed at 25% in accordance with Section 110 of the Taxes Consolidation Act, 1997.

Interest on investment securities is receivable quarterly in arrears on 20 January, 20 April, 20 July and 20 October each year. The repayment of the investment securities and related interest to the Company is conditional upon the performance of the reference pool. There isno guarantee that the Company will receive the full principal of the investment securities and interest thereon.

Interest terms

£109,153,346

2021

£176,000,000

Share capital receivable


0.675% fixed rate plus indexation

factor

Series

Investment securities £176,000,000 variable rate loan

Mapeley Loan

During the year under review, the following full and partial repayments of loans were made:

£109,153,346

Fair Value

Maturity

Original Nominal Value

Current Nominal Value

21


12 FINANCIAL LIABILITIES AT FVTPL

2019 2018

GBP GBP

Notes at start of year 111,866,130 110,147,546

Notes redeemed during the year (7,986,966) (2,312,048)

Fair value movement on financial liabilities for year 1,975,274 4,030,632

Notes at end of year 105,854,438 111,866,130

Maturity Analysis Less than 1 year - -

1 to 2 years - -

2 to 5 years 105,854,438 - Greater than 5 years - 111,866,130

105,854,438 111,866,130

Description of

Notes

2019 2018

GBP GBP GBP

Class A 24 April 2024 GBP 364,000,000 90,519,622 98,506,588

Class X 24 April 2024 GBP 50,000 50,000 50,000 Class B 24 April 2024 GBP 40,100,000 19,651,818 19,651,818 Class C 24 April 2024 GBP 36,000,000 17,642,530 17,642,530 Class D 24 April 2024 3 Month LIBOR plus 0.9% p.a. GBP 7,000,000 7,000,000 7,000,000 Current year fair value movement on financial liabilities 1,975,274 4,030,632 Prior year fair value movement on financial liabilities (30,984,806) (35,015,438)

Fair Value at the year end 105,854,438 111,866,130

13 DERIVATIVE FINANCIAL INSTRUMENTS

2019 2018 GBP GBP

At start of year 5,295,349 9,325,981 Fair value movement of basis rate swaps - Barclays (3,416) 33,982 Fair value movement of interest rate swaps - Bank of America Merrill Lynch (1,971,858) (4,064,614)

At end of year 3,320,075 5,295,349

142019 2018 GBP GBP

Authorised

40,000 Ordinary shares of €1 each 26,992 26,992

Issued40,000 Ordinary shares of €1 each 26,992 26,992

26,992 26,992

152019 2018 GBP GBP

At beginning of year 3,883 3,483 Transfer to reserves from Profit and Loss Account 412 400

At end of year 4,295 3,883

Original

Nominal

Nominal

RETAINED EARNINGS

All of the Notes were issued on 21 November 2006. Interest on the Notes is payable quarterly in arrears on 24 January, 24 April, 24 July and 24October each year. The final maturity date of the Notes is 24 April 2024.

The repayment of the Notes and related interest due by the Company is conditional upon the performance of the reference pool. The Notes areexposed to the credit risk of a portfolio of loans advanced by Merrill Lynch International Bank Limited and Merrill Lynch Capital Corporation. Thereis no guarantee that the noteholders will receive the full principal of the Notes and interest thereon.

Interest Rate Nominal

3 Month LIBOR plus 0.52% p.a.


Variable rate3 Month LIBOR plus 0.35% p.a.

SHARE CAPITAL PRESENTED AS EQUITY

Final

maturity date

CCY

3 Month LIBOR plus 0.19% p.a.

22


16 FINANCIAL RISK MANAGEMENT

(a) Introduction and overview

As at 21 November

2006

Rating Rating Date

Class A AAA B+ 27 April 2017Class X AAA NR 05 April 2012Class B AA D 13 August 2014Class C A D 13 August 2014Class D BBB D 13 August 2014

This note presents information about the Company's exposure to each of the above risks, the Company's objectives, policies and processes formeasuring and managing risk and the Company's management of capital.

(c) Market riskMarket risk is the potential adverse change in earnings or the value of net worth arising from movements in interest rates, foreign exchange rates orother market prices. Market risk embodies the potential for both loss and gains and includes three types of risk: currency risk, interest rate risk andprice risk.

The Company enters into a variety of derivative financial instruments to manage its exposure to interest rate risk.

The Company was incorporated to issue multiple classes of Notes, with the credit rating of each independent of the others. The Standard & Poor'sRating Services ("S&P")credit rating of the Notes issued by the Company is as follows:

The Company's principal financial liabilities, other than derivatives, comprise debt securities issued and trade payables and the financial assetscomprise trade receivables and cash and a portfolio of assets comprising mainly of commercial mortgages.

The Company also enters into derivative transactions, primarily Basis Rate Swap and Interest Rate swaps. The purpose is to manage the risksarising from the Company's operations and its sources of finance.

The Company is not currently engaged in any other activities.

The risk profile of the Company is such that market, credit, liquidity and other risks of the investment securities and derivatives held for riskmanagement are borne fully by the holders of the Notes issued.

The Company has exposure to the following risks from its use of financial instruments:

- Market risk;- Currency Risk;- Interest rate risk;- Capital risk management;- Credit risk;- Liquidity and cashflow risk;- Operational risk; and- Fair value of financial instruments.

(i) Currency riskThe Company limits its exposure to currency risk by operating bank accounts in currencies other than its functional currency for receipts andpayments in currencies other than its functional currency.

(ii) Interest rate riskThe Company is exposed to interest rate risk as it borrows funds at floating interest rates. The note holders are entitled to receive distributions frominterest received on the assets according to the priority of payments to the extent of funds available. The note holders are exposed to interest raterisk to the extent that there is an interest rate mismatch between the rates at which interest accrues on the Notes and the rates at which interestaccrues on the assets. To mitigate such interest rate risks, the Company has entered into interest rate and basis rate swaps. The Company throughthe use of the swap and terms of the Notes has transferred all interest rate risk to the swap counterparty and the noteholders.

(b) Risk Management FrameworkThe Board has overall responsibility for the establishment and oversight of the Company's risk management framework. The Board engagesspecialised service providers to manage the risk on its behalf, such as the loan servicer.

Should the net proceeds be insufficient to make all payments due in respect of a particular Class of Notes, the other assets of the Company will notbe available for payment and the deficit is instead borne by the Noteholders and the Swap Counterparties (where applicable) according to theestablished priorities.

The yield to maturity on the Class X Note will be highly sensitive to the rate and timing of principal payments and collections (including by reason ofa voluntary or involuntary prepayment, or a default and liquidations) on the Originated Loans. Investors in the Class X Note should fully considerthe associated risks, including a risk that a faster than anticipated rate of principal repayments and collections could result in a lower than expectedyield, and an early liquidation of the originated loans could result in the failure of such investors to fully recoup their initial investment.


23


16 FINANCIAL RISK MANAGEMENT - continued

(c) Market risk - continued

(ii) Interest rate risk - continued

31 July 2019

Assets GBP GBP GBP GBPNon-interest bearing 19,482 - - 19,482Floating rate investment securities 137,182 109,153,346 - 109,290,528Cash and cash equivalents 312,737 - - 312,737

469,401 109,153,346 - 109,622,747

Liabilities GBP GBP GBP GBPNon-interest bearing 304,492 - - 304,492 Derivative liabilities - 3,320,075 - 3,320,075 Fixed interest rate debt securities 60,926 - - 60,926 Floating rate debt securities 51,529 - 105,854,438 105,905,967

416,947 3,320,075 105,854,438 109,591,460

31 July 2018

Assets GBP GBP GBP GBPNon-interest bearing 18,526 - - 18,526Floating interest rate investment securities 209,507 117,140,313 - 117,349,820 Cash and cash equivalents 692,589 - - 692,589

920,622 117,140,313 - 118,060,935

Liabilities GBP GBP GBP GBPNon-interest bearing 713,511 - - 713,511 Derivative liabilities - 5,295,349 - 5,295,349 Fixed interest rate debt securities 69,066 - - 69,066 Floating interest rate debt securities 86,004 - 111,866,130 111,952,134

868,581 5,295,349 111,866,130 118,030,060

2019 2018GBP GBP

Investment SecuritiesInvestment securities held 109,153,346 117,140,313 Total 109,153,346 117,140,313

Sensitivity analysis

1-5 years Over 5 years Total

1-5 years


Less than 1 year 1-5 years

As all the Company’s financial instruments are carried at fair value with fair value changes recognised in the Statement of Comprehensive Income,all changes in market conditions will directly affect net gain from investment securities.

Any changes in the prices of the investment securities held by the Company would not have any effect on the equity or the Statement ofComprehensive Income of the Company as any fair value fluctuations are ultimately borne by the holders of the investment securities issued by theCompany.

If the market prices of investment securities held by the Company at 31 July 2019 and 31 July 2018 had increased or decreased by 10%, with allother variables held constant, this would have increased or reduced the carrying value of investment securities held by €10,915,335(2018:€11,714,031).

Price Risk – sensitivity analysis

Less than 1 year Over 5 years

Other price risk may include risks such as equity price risk, commodity price risk, prepayment risk (i.e. the risk that one party to a financial asset willincur a financial loss because the other party repays earlier or later than expected), and residual value risk. In relation to the Company’s portfolio,this is not subject to equity price risk, commodity price risk and residual value risk.

Total

As at the reporting date, the interest rate profiles of the Company's interest bearing financial instruments was:

The following is a breakdown of the Company’s investment securities at the reporting date:

Less than 1 year 1-5 years Over 5 years

Over 5 years

(iii) Price risk

Total

Sensitivity analysisThe impact of any changes in the interest rates on the financial assets of the Company is borne by the swap counterparties therefore themovements in interest rates have no net impact on the Statement of Comprehensive Income of the Company. Therefore a sensitivity analysis wasnot prepared.

Total

Less than 1 year

Price risk is the risk that the value of financial instruments will fluctuate as a result of changes in market prices (other than those arising frominterest rate risk and currency risk), whether caused by factors specific to an individual investment, its issuer or all factors affecting all instrumentstraded in the market.

24



2019 2018 GBP GBP

Financial assets designated at FVTPL 109,153,346 117,140,313 Other receivables 156,664 228,033 Cash and cash equivalents 312,737 692,589

109,622,747 118,060,935

Cash at bank

The Company's cash balances are held mainly with US Bank which is rated A2 by Moody's in 2019 (2018: A1).

2019 2019 2018 2018 Derivatives held for trading: Notional amount Fair value

assets

Fair value

liabilities

Fair value

assets

Fair value

liabilities GBP GBP GBP GBP GBP

Interest rate swap -Bank of America Merrill Lynch 60,746,089 - (3,311,708) - (5,283,566) Basis rate swap - Barclays 67,185,220 - (8,367) - (11,783)

127,931,309 - (3,320,075) - (5,295,349)

(f) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulties in meeting obligations arising from its financial liabilities that are settled bydelivering cash or another financial asset or that such obligations will have to be settled in a manner disadvantageous to the Company.

The Company is subject to the following risks related to liquidity and cash flow:

(i) the shortfall of funds arising between scheduled Note interest payment dates on the Notes and the receipt of payments due from the Borrowers.This risk is addressed through the ability of the Company to seek drawings under the Liquidity Facility Agreement to cover Borrower receipts;

(ii) the risk of default in payment on the Originated Loans and the failure by the Note Trustee or the Servicer or the Special Servicer, as the casemay be, on behalf of the Company and the Loan Security Agent, to realise or recover sufficient funds under the enforcement procedures in respectof the relevant Borrower(s) under an Originated Loan, which risk is addressed in respect of the Notes by the credit support provided to classes ofNotes by those classes of Notes (if any) ranking lower in priority to that class; and

(iii) the risk of the interest rates payable by the Borrowers on the Originated Loans being less than that required by the Company in order to meet itscommitments under the Notes and its other obligations which risks are addressed by the swap transactions and by the ability of the Company toseek drawings under the Liquidity Facility Agreement to cover certain third party expenses and certain shortfalls in relation to the receipt of fundsunder the Originated Loans.

There is no guarantee that the Noteholders will receive the full principal amount of the Notes and interest thereon and ultimately the obligations ofthe Company to pay principal under the Notes may even be reduced to €1 per Note as a result of losses in respect of the reference claims.

The table below shows the contractual maturities of financial liabilities including undiscounted interest payments and excluding the impact of nettingagreements:

With respect to derivative financial instruments, credit risk arises from the potential failure of counterparties to meet their obligations under thecontract or arrangement.

The Company's maximum credit risk exposure to derivative instruments as at 31 July 2019 and 31 July 2018 is as follows:

(d) Capital risk managementThe Company manages its capital to ensure that it will be able to continue as a going concern.

The capital structure of the Company consists of debt, which includes the financial liabilities disclosed in Notes 12 and 13, equity comprising issuedcapital and revenue reserves as disclosed in Notes 14 and 15 respectively.

The above represents a worst case scenario of credit exposure to the Company, without taking account of any other credit enhancements. Theexposures set out above are based on amounts as reported in the Balance Sheet.

(e) Credit riskCredit risk is the risk of the financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations, andarises principally from the Company's credit linked assets.

The Company's financial assets are cash and cash equivalents, trade and other receivables and financial assets at FVTPL which represent theCompany's maximum exposure to credit risks in relation to financial assets. The Company's maximum exposure to credit risk in the event thatcounterparties fail to perform their obligations as at 31 July 2019 and 31 July 2018 in relation to each class of recognised financial assets, otherthan derivatives, is set out below:


25



31 July 2019 Carrying Amount Less than 1 year

1-5 years Over 5 years

GBP GBP GBP GBPNotes payable 105,854,438 - - 105,854,438 Financial derivatives 3,320,075 - - 3,320,075 Other liabilities 416,947 416,947 - -

109,591,460 416,947 - 109,174,513

31 July 2018 Carrying Amount Less than 1 year

1-5 years Over 5 years

GBP GBP GBP GBPNotes payable 111,866,130 - - 111,866,130 Financial derivatives 5,295,349 - - 5,295,349 Other liabilities 868,581 868,581 - -

118,030,060 868,581 - 117,161,479

(i) Accounting classifications and fair value of financial assets and liabilities

2019

Nominal value at

31 July 2019

Amortised

cost

Designated at

fair value

through profit

or loss Fair Values € € €

AssetsInvestment securities held 109,153,346 - 109,153,346 109,153,346

Other assets - 156,664 - 156,664

Cash at bank - 312,737 - 312,737 109,153,346 469,401 109,153,346 109,622,747

LiabilitiesNotes issued 134,863,970 - 105,854,438 105,854,438

Derivative liabilities - - - -

Other liabilities - 416,947 3,320,075 3,737,022 134,863,970 416,947 109,174,513 109,591,460

(f) Liquidity risk - continued

(g) Operational risk exposureOperational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company's processes, personnel andinfrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirementsand generally accepted standards of corporate behaviour. Operational risks arise from all of the Company's operations. Certain administrationfunctions have been outsourced by the Company to Apex IFS Limited.

The loan servicer has attempted to match the properties of the Company's financial liabilities to its assets to avoid significant elements of risk beinggenerated by mismatches of investment performance against its obligations together with any maturity or interest rate risk. The loan servicer seeksto assess, monitor and manage the potential adverse effects of these risks on the Company's financial performance by appropriate methods asdiscussed below.


The table below shows the estimated fair value and the carrying value for each major category of financial asset and liability in the Statement ofFinancial Position at the Statement of Financial Position date. The fair value of the financial instrument is the amount at which it could beexchanged in an arm’s length transaction between informed and willing parties, other than in a forced sale or liquidation.

For estimates relating to the exit values of the financial assets' underlying security the following should be noted:

The Servicing Agreement provides, and the prospectus states, that no further or updated independent valuations of the properties will be obtainedexcept upon the occurrence of a valuation event which includes the occurrence of any payment default on a loan at its maturity date. The Directorsdo not have any discretion to instruct the Servicer or Special Servicer to obtain updated valuations other than in accordance with the prospectusand the Servicing Agreement.

(h) Fair value of financial instrumentsThe fair value of financial assets at FVTPL traded in an active market is based on quoted current bid prices at the Balance Sheet date. Forfinancial liabilities at FVTPL traded in an active market the fair value is determined based on the quoted current asking price. When current bid andasking prices are unavailable for the financial assets and liabilities at FVTPL traded at in an active market, the fair value is based on the last tradedprice.

The fair value of the financial assets or liabilities at FVTPL for which there is not an active market or an available quoted market price is estimatedusing valuation techniques. The Company bases assumptions on market conditions at Balance Sheet date and the time of performing the valuation and use a variety of techniques, including the use of recent similar arm's-length market transactions if available, reference to the current fair valueof another instrument that is substantially the same, discounted cash flow analysis, option pricing models or any other valuation techniquecommonly used by market participants to price the instrument that provides reliable estimates of prices obtained in actual market transactions.

The Notes will all share the same security, but, in the event of the security being enforced, the Class A Notes, the Class X Note and the Class BNote will rank higher in priority to the Class C Notes and the Class C Notes will rank higher in priority to the Class D Notes.

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(h) Fair value of financial instruments (continued)

2018

Nominal value at

31 July 2018

Amortised

cost

Designated at

fair value

through profit

or loss Fair Values € € €

AssetsInvestment securities held 117,140,313 - 117,140,313 117,140,313

Other assets - 228,033 - 228,033

Cash at bank - 692,589 - 692,589 117,140,313 920,622 117,140,313 118,060,935

LiabilitiesNotes issued 142,850,936 - 111,866,130 111,866,130

Derivative liabilities - - - -

Other liabilities - 868,581 5,295,349 6,163,930 - 868,581 117,161,479 118,030,060

Level 1

Level 2

Level 3

31 July 2019 Level 1 Level 2 Level 3 Total Fair Value GBP GBP GBP GBP

Investment securities held - - 109,153,346 109,153,346

Derivative financial instruments - 3,320,075 - 3,320,075 Notes issued - - 105,854,438 105,854,438

- 3,320,075 105,854,438 109,174,513

31 July 2018 Level 1 Level 2 Level 3 Total Fair Value GBP GBP GBP GBP

Investment securities held - - 117,140,313 117,140,313

Derivative financial instruments - 5,295,349 - 5,295,349Notes issued - - 111,866,130 111,866,130

- 5,295,349 111,866,130 117,161,479

DERIVATIVES LIABILITIES

NOTES HELD

INVESTMENT SECURITITES Valuation Techniques

Valuation Techniques

Valuation Techniques

Quoted market price (unadjusted) in an active market for an identical instrument.

Valuation techniques based on observable inputs, either directly (i.e. quoted prices) or indirectly (i.e. derived by prices). Thiscategory includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices forsimilar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs aredirectly or indirectly observable from market data.

Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuationtechnique includes inputs not based on observable data and the unobservable inputs could have a significant effect on theinstrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments wheresignificant unobservable adjustments or assumptions are required to reflect differences between the instruments.

At the reporting date, the carrying amounts of the investment securities, derivative financial instruments and debt securities issued by the Companywhich fair values were determined directly, in full or in part, by reference to published price quotations and determined using valuation techniquesare as follows:

(j) Fair value hierarchyThe Company makes disclosures relating to fair value measurements using a three-level fair value hierarchy that reflects the significance of theinputs used in measuring fair values and contains the following three levels:

At the reporting date, the carrying amount of the investment securities held, derivative financial instruments and debt securities issued by theCompany where fair values were determined, in full or in part, by reference to published price quotations and determined using valuation techniquesare as follows:

The Directors have engaged an external expert to prepare an independent fair value assessment of the Loan portfolio as at 31 July 2019.A valuation model has been determined for the loan and the relevant valuation parameters and assumptions have been identified.

However, the Directors used the independent fair value assessment as a benchmark to determine the fair value of the loan. Based on alternativemarket reviews and sources, the Directors are satisfied that the fair value of the loan most approximates the nominal value which represents theamount to be repaid at maturity. Given the limited recourse nature of the Company’s Notes issued, any movement on the fair value of the financialassets and derivative financial instruments was absorbed in the fair value movement on Notes issued.

The fair values of derivative financial instruments are obtained independently from the Barclays Bank Plc and Bank of America Merrill Lynch, whohave their own internal controls and risk management processes in place.

Although the Directors believe that their estimates of fair value are appropriate, the use of different methodologies or assumptions could lead todifferent measurements of fair value as fair value estimates are made at a specific point in time, based on market conditions and information aboutthe financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement e.g. interest rates,volatility, credit spreads, probability of defaults, estimates, cash flows, etc., and therefore, cannot be determined with precision.


27



(j) Fair value hierarchy (continued)

17 OWNERSHIP OF THE COMPANY

18 TRANSACTIONS WITH RELATED PARTIES

19 SUBSEQUENT EVENTS

20 APPROVAL OF FINANCIAL STATEMENTS

Since the beginning of the coronavirus outbreak in January 2020, the coronavirus has spread across the world, causing ongoing disruption tobusinesses and economic activity worldwide. Global markets have reacted sharply to this pandemic, with concerns regarding the economic impactthis may have on a global scale. Due to the evolving nature of the pandemic, it is not possible at the date of issue of these financial statements toestimate its financial impact, if any, on the Company’s debt securities in issue and the underlying investment securities. The Board of Directors willcontinue to monitor the impact on the Company’s activities.


Sensitivity analysisAny changes in the prices of the financial assets under Level 3 held by the Company would not have any effect on the shareholders funds or profitof the Company as any fair value fluctuations are ultimately borne by the noteholders due to the limited recourse nature of the Notes issued by theCompany. Therefore, a sensitivity analysis was not prepared.

During the year the Company incurred a fee of £20,898 (2018: £19,509) relating to administration services provided by Apex IFS Limited. One ofthe Company's Directors, Lisa Hand is also an employee of Apex IFS Limited who was deemed to have an interest in the above fee. There are nilamounts outstanding at year-end (2018: nil).

The principal shareholders are Apex Foundation Services Limited (1 share), Apex Nominee Services 2 Limited (1 share), Apex NomineeServices 3 Limited (1 share), Apex Nominee Services Limited (1 share), Forbrit Corporate Director 3 Limited (1 share), Forbrit Corporate Director 4Limited (1 share) and Apex Trustee Services Limited (39,994 shares).

All shares are held under the terms of declarations of trust dated 15 August 2006, under which the relevant share trustee holds the issued shares ofthe Company on trust for a charity.

The directors considered the issue as to who would be the controlling party to the Company and it was considered the control rests with the Boardof Directors.

There have been no other significant events after the reporting period, which would require revision of the figures or disclosure in the financial

The financial statements were approved and authorised for issue by the Board on _____________________.

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27 April 2020

company registration no: 424421 taurus cmbs (uk) 2006-2 public limited company … · company...

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