DBRS Ratings GmbH (DBRS) confirmed the ratings on all classes of the Commercial Mortgage-Backed Floating Rate Notes Due Notes Due May 2030 (the Notes) issued by Taurus 2018-1 It S.R.L. (the Issuer):
-- Class A Notes at AA (low) (sf)
-- Class B Notes at A (sf)
-- Class C Notes at BBB (sf)
-- Class D Notes at BB (high) (sf)
-- Class E Notes at BB (low) (sf)
All trends are Stable.
The rating confirmations reflect the transaction’ s overall stable performance since issuance.
Taurus 2018-IT S.r.l. is the securitisation of three Italian commercial real estate (CRE) loans: the Camelot loan, the Bel Air loan and the Logo loan. The Camelot and Bel Air loans were jointly advanced by the Bank of America Merrill Lynch International Limited (BAML), Milan branch while Bank of America Merrill Lynch International (BAML) advanced the Logo loan. The Camelot and Bel Air loans were granted for the acquisition financing of their respective portfolios and the Logo loan was granted as a refinancing facility to the Logo borrower.
The collateral for the Camelot and Logo loans are backed by Italian logistic assets while the collateral for the Bel Air loan is backed by Italian retail properties. The logistic assets are sponsored by the Blackstone Group L.P. (Blackstone) and managed by Logicor, while the retail assets are sponsored by the Partners Group L.P., which bought the properties from Blackstone in January 2018. The retail assets are managed by Kryalos Asset Management.
The total debt for the three loans at issuance was EUR 359.6 million; however, the Issuer retains a 5.0% share of each note making the securitisation balance of EUR 341.7 million as of the February 2019 interest payment date (IPD). However, , EUR 5.256 million of the EUR 215 million Camelot facility was allocated for the acquisition of the Massalengo I extension project, which was originally planned to be purchased by YE2018. The extension was not purchased, and according to the notice posted on the Irish Stock Exchange on 15 May 2019, the EUR 5.256 million (EUR 4.99 million of the securitised balance) will instead be used to pay down the noteholders on a pro rata basis. Since, according to DBRS’s “European CMBS Rating and Surveillance Methodology”, DBRS does not give any credit to properties under construction, the DBRS value at issuance did not reflect the acquisition of the Massalengo I extension. Therefore, this paydown can be seen as a credit positive event for the Notes.
The gross rental income (GRI), as of the February 2019 IPD report, was reported at approximately EUR 44.2 million compared with the GRI at issuance of EUR 43.5 million. The growth in revenues throughout the loans has increased the net operating income (NOI) to approximately EUR 38.1 million, an increase of 2.6% over the reported NOI at issuance of EUR 37.1 million and 27.8% higher than the DBRS underwritten (UW) net cash flow (NCF) of EUR 29.8 million. Also, the weighted-average (WA) debt yields (DY) of the three loans was 10.6% as of the February 2019 IPD compared with 10.3% at issuance.
The Camelot and Bel Air loans benefit from a relatively granular income stream with the top ten tenants accounting for 70.3% and 28.2% of GRI, respectively, whereas the Logo portfolio has a concentrated rent roll of two tenants across its three assets. At issuance, the Logo loan had the lowest weighted-average lease term (WALT) of 1.4 years, due to TNT having a break option in June 2018. The tenant did not exercise this option and now the servicer is reporting a WALT of 6.5 years. The lease maturity profile has also improved significantly for the Camelot portfolio, increasing from 3.1 years to 8.2 years, following the lease extension of the largest tenant, Kuehne and Nagel S.r.l., which originally had a lease expiration date in August 2018. The Bel Air portfolio, which had the longest WALT at issuance of 5.1 years, has seen a slight decrease to 4.4 years, as of the February 2019 IPD. Occupancy throughout the three portfolios has remained stable and slightly increased since issuance. The Logo portfolio remains 100% occupied while the occupancy for the Camelot portfolio increased to 97.9% from 97.0% and the occupancy for the Bel Air portfolio increased to 97.5% from 96.9%.
Similar to other Blackstone-sponsored loans, there are no default covenants for the Camelot and Logo loans; instead, they only have cash trap covenants based on LTV and DY tested every IPD. The Camelot loan has a fixed-LTV cash trap covenant at 80% and an increasing DY covenant. The Logo loan has one LTV cash trap covenant set at 72% and a DY covenant set at 9%. It should be noted that both Camelot loan and the Logo loan have a higher DY covenant post permitted change of control or permitted structural change. The Bel Air loan has a default covenant of 70% LTV and 9% DY in before year 3 and 10% DY after. This loan also has tightening-LTV cash trap covenants set at 65% for the first three years and 60% during the loan extension period; the same applies to the loan’s DY covenant, increasing to 11% from 10% during the initial loan term, should the loan be extended.
As the three loans have varying LTVs, with the Camelot, Logo and Bel Air loans having LTVs reported at 72.0%, 61.7% and 51.0%, respectively, as of the February 2019 IPD, a paydown of either the Logo or Bel Air loan would make the transaction more leveraged. This risk has been mitigated with all paydowns from property disposals allocated sequentially as well as any other principal paydown from the Bel Air and Logo loans . Principal paydown from the Camelot loan will be distributed 90.0% pro rata and 10.0% reverse sequential, unless the Camelot loan is the only remaining loan, in which case the principal receipts will be paid pro rata.
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 surveillance section of the principal methodology.
A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.
Other methodologies referenced in this transaction are listed at the end of this press release.
These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.
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: https://www.dbrs.com/research/333487/rating-sovereign-governments.
The sources of data and information used for the ratings include Securitisation Services S.p.A.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS was 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 this rating to be of satisfactory quality.
DBRS does not audit or independently verify the data or information it receives in connection with the rating process.
This is the first rating action since the Initial Rating Date.
The lead analyst responsibilities for this transaction have been transferred to Christopher Horst.
Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
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 A (low) (sf)
--20% decline in DBRS NCF, expected rating of Class A Notes to BBB (sf)
Class B Notes Risk Sensitivity:
--10% decline in DBRS NCF, expected rating of Class B Notes to BBB (sf)
--20% decline in DBRS NCF, expected rating of Class B Notes to BB (high) (sf)
Class C Notes Risk Sensitivity:
--10% decline in DBRS NCF, expected rating of Class C Notes to BB (high) (sf)
--20% decline in DBRS NCF, expected rating of Class C Notes to BB (sf)
Class D Notes Risk Sensitivity:
--10% decline in DBRS NCF, expected rating of Class D Notes to B (high) (sf)
--20% decline in DBRS NCF, expected rating of Class D Notes to CCC (high) (sf)
Class E Notes Risk Sensitivity:
--10% decline in DBRS NCF, expected rating of Class E Notes to B (low) (sf)
--20% decline in DBRS NCF, expected rating of Class E Notes to CC (high) (sf)
For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.
Lead Analyst: Christopher Horst, Senior Financial Analyst
Rating Committee Chair: Erin Stafford, Managing Director
Initial Rating Date: 24 April 2018
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- 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: http://www.dbrs.com/research/278375.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at email@example.com.