Press Release

DBRS Finalises Ratings of Oranje (European Loan Conduit No. 32) DAC

December 04, 2018

DBRS Ratings Limited (DBRS) finalised its provisional ratings of the following classes of notes issued by Oranje (European Loan Conduit No. 32) DAC (the Issuer):

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)

All trends are Stable.

Oranje (European Loan Conduit No. 32) DAC is a five-loan conduit securitisation arranged by Morgan Stanley & Co. International plc (Morgan Stanley). The transaction comprises five Dutch commercial real estate loans (the Cygnet, Cheetah, Phoenix, Desert and Legion loans) advanced by Morgan Stanley Bank N. A. (the Loan Seller or Morgan Stanley) and sourced in cooperation with Unifore DMC to the relevant Dutch borrowers between October 2017 and September 2018. The Cygnet, Cheetah and Phoenix loans were advanced as refinancing facilities whereas the Desert and Legion loans were advanced as acquisition facilities. None of the loans have mezzanine debt or have been syndicated.

The five loans, totalling EUR 207.3 million at the time of the securitisation and backed by 78 properties with an aggregated market value (MV) of EUR 343.9 million, can be further divided into two groups: four loans are five-year partially amortising loans with higher margins (over 3.0%) and a higher leverage (over 64.8% loan-to-value, LTV). In contrast, the Phoenix loan has a lower margin (1.9%) and lower leverage (54.2% LTV), but is interest only. The Phoenix loan has a three-year loan term with two one-year extension options.

The EUR 96.0 million (EUR 99.5 million at origination then the borrower voluntarily prepaid EUR 3.5 million) Phoenix loan is the largest loan in the transaction, representing 51.5% of the MV and, because of the relatively lower LTV ratio, 46.3% of the securitised debt amount. The Phoenix portfolio comprises 18 office properties across 11 towns and cities in the Netherlands. Approximately 49.4% of the MV is concentrated in Amsterdam (including Hoofddorp), the Hague, Rotterdam and Utrecht. Noteworthily, two of the three office buildings in Rotterdam—one located in the Rotterdam city centre and another located east of the city—are barely occupied, bringing the overall occupancy down to 82.8%. The sponsor of the Phoenix loan is Marathon Asset Management; the company has planned to lease up the portfolio following the completion of some capital expenditure investments in two Rotterdam assets.

The Cheetah loan is the second-largest loan in the transaction, with a EUR 48.2 million initial loan balance (22.6% of the securitised debt) and EUR 70.1 million MV (20.4% of the transaction MV). The Cheetah portfolio comprises 43 properties, 26 of which are retail properties and 17 are multifamily residential properties. The properties are geographically diversified across the Netherlands and have a historical occupancy rate averaging over 90% for the past ten years. However, DBRS noted that several out-of-town retail assets have remained vacant for a prolonged period of time, and as such DBRS has underwritten a higher vacancy rate for the retail assets (13.2%). The sponsor for the Cheetah loan is Woon Winkel Fonds, a real estate fund with a team of seven. The fund solely focuses on managing the Cheetah properties.

The Cygnet loan is secured by 12 assets (eight office and four office/industrial mixed-use assets) representing 11.7% debt balance and 10.8% MV of the transaction. The assets were 83.0% occupied, as of 30 June 2018 (the cut-off date), slightly above the historical average of roughly 80%. The sponsor of the loan is Annexum Beheer B.V., the largest retail fund in the Netherlands with about EUR 500 million in office assets. The asset manager has adopted the flexible office concept to effectively lease up the vacant spaces with shorter leases, which were discounted when calculating occupancy. This strategy was successful in converting one large short-term lease to a long-term lease. DBRS was informed that a property disposal has taken place prior to the closing of the securitisation and the net proceeds have been used to prepay the loan.

The fourth-largest loan of the transaction, the Desert loan, makes up 11.5% of the securitised balance and 10.2% of the total MV. The acquisition financing was provided to assist Highbrook’s purchase of the Le Mirage office building in Utrecht from Rockspring. Since the cut-off date, the new sponsor has successfully completed some new leases, taking the current overall occupancy up to 89% from 80%. The property is located in the southwest of Utrecht where rental demand is increasing. Highbrook’s business plan involves increasing rental income through a combination of leasing up the existing vacant space and adjusting existing rents to market levels, which are currently approximately 20% above the current in-place levels.

The smallest loan in the transaction is the Legion loan, which makes up the remaining 8.0% of securitised balance and 7.1% of the transaction MV. The EUR 16.5 million loan was advanced to Aventicum in connection with their acquisition of four office assets all located in the Randstad region. The Utrecht asset is completely vacant. The sponsor is planning to convert the building into a multi-let building, which is different from the strategy adopted by the previous owner. As such, the loan features a leasing trigger set at 65% occupancy of the current vacant building. If the targeted occupancy were not met, more conservative loan covenants will apply: such as (1) if the trigger is not met after by the fifth interest payment date, a 1.0% increase in annual amortisation after 12 months from utilisation; (2) if the trigger is not met by 18 months after utilisation, a cash trap if a weighted-average-lease-to-break falls below two years and (3) an increased 35% release premium based on allocated loan amount. The loan will amortise from the second year after utilisation.

All five loans feature tightening LTV and debt yield (DY) covenants for cash trap and event of default. Each borrower has procured hedging facilities with Cygnet covering 70.0% of the loan amount and the remaining loans covering the full loan amount with various cap strike rates. The weighted-average cap strike rate is approximately 1.8%. For the Cygnet, Cheetah and Desert loans, a step-down amortisation rate would apply should the LTV and DY improve significantly, i.e. if the loan’s LTV falls below 60%. The proceeds from scheduled amortisation, partial prepayment or repayment will be distributed to the noteholders pro rata for all loans except for the Phoenix loan. As the Phoenix loan represents nearly half of the securitised debt, has a lower leverage and is a shorter loan term with extension options, the repayment proceeds of the loan will be distributed 70% pro rata and then 30% sequentially to the noteholders in order to offset the likely increased average LTV of the transaction following the Phoenix loan pre/repayment. Finally, for the Cygnet and Cheetah loans, the facility agreement also requires the borrowers to use all property disposal proceeds to prepay the respective loan.

To originate the securitised loans, Morgan Stanley has worked together with Unifore DMC, which is a specialised Dutch real estate investment and asset management company. Unifore DMC helps Morgan Stanley source commercial real estate loans.

All investment-grade notes benefits from a liquidity facility of EUR 9.0 million, which equals to 4.4 % of the total outstanding balance of the covered notes and vertical risk retention loan interest and is provided by Wells Fargo Bank, N.A., London Branch. The liquidity facility can be used to cover interest shortfalls on the Class A, B, C and D. According to DBRS’s analysis, the commitment amount, as at closing, could provide interest payment on the covered notes up to 16 months and nine months based on the interest rate cap strike rate of circa 1.8% and the Euribor cap of 5% (in respect of the pro rata share of any loan which has passed its maturity), respectively. DBRS has analysed several scenarios where a particular loan pre/repays and the impact of scheduled amortisation on the assigned ratings. DBRS concluded the assigned ratings would still apply in such scenarios.

The transaction is expected to repay on or before 22 November 2023, seven days after the latest senior loan maturity. Should a loan default before the expected note maturity, a special servicing transfer event will occur in respect of the defaulted loan and the proceeds from the defaulted loan will be applied sequentially to the notes. Should the notes fail to be redeemed in full by the expected note maturity, the issuer will make principal payments on a sequential basis. The transaction will be structured with a five-year tail period to allow the special servicer to work out loans not repaid at maturity by 15 November 2028 at the latest, which is the final legal maturity of the notes.

The Class E notes are subject to an available funds cap where the shortfall is attributable to an increase in the weighted-average margin of the notes.

The transaction includes a Class X diversion trigger event over two levels, which are depending on the percentage of defaulted outstanding loan amount in the transaction. If between 25% and 50% of the outstanding loan balance is in default, 25% of the excess spread will be diverted into the Issuer transaction account and credited to the Class X diversion ledger. Should the defaulted loan amount increase to over 50% of the then total outstanding loan amount, all excess spreads will be diverted and credited to Class X diversion ledger. No excess spread will be diverted after expected note maturity, as excess spread will then be fully subordinated to principal due on the notes on a sequential basis. However, if the trigger is cured for two consecutive interest payment dates, the held amount will be released back to the Class X noteholders. Should the Class X diversion trigger event continue for two consecutive note payment dates (excluding the note payment day on which the trigger was activated), any amount standing to the credit of the Class X diversion ledger for the same period will be swept to form part of the principal available funds.

Morgan Stanley retained a 5% material interest in the transaction through the vertical risk retention loan interest.

All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “European CMBS Rating and Surveillance Methodology.”

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

Other methodologies referenced in this transaction are listed at the end of this press release.

These may be found on at:

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at:

The sources of data and information used for the ratings include Morgan Stanley and its delegates.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

These ratings concerns a newly issued financial instrument. These are the first DBRS ratings on this financial instrument.

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):

Class A Notes Risk Sensitivity:
--10% decline in DBRS NCF, expected rating of Class A notes to AA (low) (sf)
--20% decline in DBRS NCF, expected rating of Class A notes to A (low) (sf)

Class B Notes Risk Sensitivity:
--10% decline in DBRS NCF, expected rating of Class B notes to A (low) (sf)
--20% decline in DBRS NCF, expected rating of Class B notes to BBB (sf)

Class C Notes Risk Sensitivity:
--10% decline in DBRS NCF, expected rating of Class C notes to BBB (sf)
--20% decline in DBRS NCF, expected rating of Class C notes to BB (high) (sf)

Class D Notes Risk Sensitivity:
--10% decline in DBRS NCF, expected rating of Class D notes to BB (high) (sf)
--20% decline in DBRS NCF, expected rating of Class D notes to B (high) (sf)

Class E Notes Risk Sensitivity:
--10% decline in DBRS NCF, expected rating of Class E notes to BB (low) (sf)
--20% decline in DBRS NCF, expected rating of Class E notes to CCC (sf)

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see:

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Rick Shi, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 6 November 2018

DBRS Ratings Limited
20 Fenchurch Street
31st Floor
London EC3M 3BY
United Kingdom
Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction can be found at:

-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- European CMBS Rating and Surveillance Methodology

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at:

For more information on this credit or on this industry, visit or contact us at

On 4 December 2018, DBRS amended this press release to include the missing ESMA disclosure, which states: "For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see:"