Press Release

DBRS Finalises Provisional Ratings on ERNA S.r.l.

June 05, 2019

DBRS Ratings GmbH (DBRS) finalised its provisional ratings on the following classes of commercial mortgage-backed floating-rate notes issued by ERNA S.r.l. (the Issuer):

-- Class A at A (high) (sf)
-- Class B at BBB (sf)
-- Class C at BB (high) (sf)

All trends are Stable.

ERNA S.r.l. is the securitisation of four Italian senior commercial real estate loans: the Ermete loan, the Raissa loan, the Excelsia Nove loan and the Aries loan. The loans were advanced by Erna S.r.l. The loans were granted as refinancing facilities to four borrowers all ultimately owned and controlled by TPG Sixth Street Partners (the Sponsor).

Although the four loans vary in size, they all have the same loan-to-value ratio (LTV) at 42.7%, and 5.0% interest in the transaction is held by the Sponsor through the issuance of non-rated Class Z notes. By loan amount, the largest loan is the Excelsia Nove loan with a balance of EUR 139.0 million, followed by the EUR 80.6 million Raissa loan, the EUR 64.6 million Aries loan and lastly the EUR 31.6 million Ermete loan. Each loan bears interest at a floating rate equal to three-month Euribor (subject to zero floor) plus a margin that is a function of the weighted-average of the aggregate interest amounts payable on the notes. The expected maturity for each loan is July 2024, which is five years after the utilisation date. There are no extension options.

The Ermete, Aries and Raissa borrowers are Italian close-end funds, whereas the Excelsia Nove borrower is an Italian limited liability company with an existing indebtedness of EUR 259 million, which will be partially redeemed by the EUR 139.0 million granted to the borrower at issuance. DBRS understands that prior to any disbursement, the Excelsia Nove borrowers and Pigafetta Srl (the previous lender) will agree to release all the securities backing Excelsia Nove’s outstanding debt and amend its original debt documents in order to make the residual EUR 120 million debt junior to the CMBS debt. The remaining EUR 120 million debt is expected to be repaid by upstreaming part of the cash received from the other three facilities.

The assets collateralising the four loans have a total market value (MV) of EUR 740.1 million. As of the cut-off date (31 December 2018 and 31 March 2019 for the Aries loan), the four loans produced a gross rental income (GRI) of EUR 53.1 million from 24 tenants. However, the majority of the rental income (97.5% of the total GRI or EUR 51.7 million) is received from the three largest tenants: Telecom Italia S.p.A., Enel S.r.L. and Wind Tree (a subsidiary of Enel), which are all prominent Italian corporations. The aggregate net operating income (NOI) of the loans is estimated to be EUR 40.4 million, representing a debt yield (DY) of 12.8% at the cut-off of the transaction. The loans generally benefit from a strong economic occupancy rate with the properties securing the Ermete loan fully occupied and the Raissa and Aries properties close to fully occupied. The properties securing the Excelsia Nove loan reported an economic and physical occupancy of 79.1% and 75.8%, respectively.

In this transaction, there are 648 assets that comprise a mix of office and industrial properties, telephone exchanges and warehouses. The Ermete loan is secured by 51 assets (MV of EUR 74.1 million), the Raissa loan is secured by 164 assets (MV of EUR 188.9 million), the Excelsia Nove loan is secured by 266 assets (MV of EUR 325.7 million) and the Aries loan is secured by 167 assets (MV of EUR 151.4 million). By MV, there is a concentration of assets in the Italian regions of Lombardy (15.8% of MV), Piedmont (11.3% of MV) and Sicily (9.4% of MV). Several of the assets are considered mission critical for their respective tenants.

The Excelsia Nove loan generates 98.3% of the gross rent (EUR 21.2 million of the total EUR 21.5 million gross rent) from a strong tenant, Enel S.r.L or its subsidiary Wind Tree. Enel S.r.L. is a large Italian electricity company with a long-term weighted-average lease-to-break of 10.1 years at the assets. As such, DBRS did not markdown the rental income from Enel, according to its “European CMBS Rating and Surveillance Methodology”.

The Originators, Zodiac Holdings LLC and Nucleus Investments LLC, are ultimately controlled by the Sponsor. To maintain compliance with applicable regulatory requirements, the Originators will retain an ongoing material economic interest of no less than 5.0% by subscribing to the unrated and junior-ranking EUR 15.8 million Class Z notes. This retention note is fully subordinate within the structure as it will not receive any principal payment until the Class A, B and C notes are not repaid in full.

The transaction benefits from a EUR 15.0 million liquidity reserve provided by Bank of America Merrill Lynch International, Milan Branch . The liquidity reserve facility can be only used to cover interest shortfalls on the Class A notes. According to DBRS’s analysis, the commitment amount, at closing, could provide the equivalent of approximately 16.2 months of interest coverage on the covered notes or approximately 10.7 months coverage based on the Euribor cap of 5.0%.

According to the tax due diligence reports received by DBRS, there is a potential tax liability of EUR 338,000 on the Ermete loan. This is because the purchase price of three real estate assets is lower than the assessed MV in the appraisal. There is also a EUR 435,000 potential tax liability related to the assets in the Excelsia Nove loan and a pending tax litigation amounting to EUR 103,000. However, DBRS believes the tax liability risk to be non-material to the credit quality of the bonds and largely covered by the cash surplus generated by the portfolio.

The Excelsia Nove loan is structured with a change of control clause that allows a qualifying transferee to be a permitted holder. The qualifying transferee is defined as any person that owns, controls and/or manages, directly or indirectly, commercial real estate assets (excluding any applicable property) with an aggregate MV of no less than EUR 2 billion (or its equivalent in another currency) in Europe or no less than EUR 5 billion (or its equivalent in another currency) worldwide.

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 these ratings include Bank of America Merrill Lynch International Limited, Milan branch 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 the 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.

This is the first rating action since the Initial Rating Date.

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

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

Class A Notes Risk Sensitivity:
-- a 10% decline in DBRS net cash flow (NCF) would lead to an expected rating of the Class A notes at BBB (high) (sf)
-- a 20% decline in DBRS NCF would lead to an expected rating of the Class A notes at BBB (low) (sf)

Class B Notes Risk Sensitivity:
-- a 10% decline in DBRS NCF would lead to an expected rating of the Class B notes at BB (high) (sf)
--a 20% decline in DBRS NCF would lead to an expected rating of the Class B notes at BB (low) (sf)

Class C Notes Risk Sensitivity:
-- a 10% decline in DBRS NCF would lead to an expected rating of the Class C notes at BB (sf)
-- a 20% decline in DBRS NCF would lead to an expected rating of the Class C notes at B (low) (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 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: 10 May 2019

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

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

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

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