DBRS Ratings Limited (DBRS) confirmed the ratings on all classes of the Commercial Mortgage-Backed Floating Rate Notes Due April 2028 issued by Ribbon Finance 2018 PLC (the Issuer):
-- Class A Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)
-- Class C Notes at A (sf)
-- Class D Notes at BBB (high) (sf)
-- Class E Notes at BBB (low) (sf)
-- Class F Notes at BB (high) (sf)
-- Class G Notes at BB (sf)
All trends are Stable.
The rating confirmations reflect the transaction’s overall stable performance since issuance.
Ribbon Finance 2018 PLC is the securitisation of a GBP 449.8 million senior loan advanced to Ribbon Bidco Limited to provide partial acquisition financing for the Dayan family (the Sponsor) to acquire Lapithus Hotels Management UK (LHM) and 20 hotels (the transaction). The initial lender is Goldman Sachs Bank USA and the transaction was arranged by Goldman Sachs International (together, Goldman Sachs).
The senior loan is secured by 20 hotels located in the U.K.: three hotels operate under the Crowne Plaza brand and 17 hotels are flagged by Holiday Inn (the portfolio). GBP 69.2 million was also advanced to the Sponsor as a mezzanine loan which is structurally and contractually subordinated to the senior loan and does not form part of the transaction.
As of the April 2019 interest payment date, the total debt was GBP 444.18 million, representing a 64.5% loan-to-value ratio (LTV) following the senior loan’s amortisation of 1% since issuance; the LTV at closing was 65%. The performance metrics reported in the Q1 2019 servicer report are mostly in line with the business plan. Hotel room occupancy across the portfolio for the last 12 months (LTM) was 84.27% and for the last three months was 75.83%. Reported LTM revenue was GBP 182.0 million and net operating income (NOI) was GBP 48.3 million. Occupancy and NOI at issuance were 84.6% and GBP 50.6 million, respectively. The loan is performing above its cash trap and default covenant levels with a debt yield 10.8% and an interest coverage ratio of 2.72x.
At inception, the hotels’ properties and operations were each held by a combined OpCo/Propco ownership and DBRS’s analysis, amongst other metrics, included the potential risks arising from the property-owning companies being trading companies; for example, employee termination compensation costs, reductions in exit prices on sale of the portfolio and also the increased timing of any likely workout period following an event of default. It is understood that the Sponsor is undergoing an organisational restructuring, which involves the implementation of a separate Opco/Propco structure. It is understood that despite the reorganisation the ultimate controlling beneficial ownership of both the operations and the properties shall remain the same. There will also be no changes to the commercial terms of the senior facility agreement and the Mezzanine facility agreement. Finally, the Senior Lenders and the Mezzanine Lenders are expected to be given third-party share security and appropriate receivables pledges (as part of the common security package) over the new companies holding the operations and the properties, as well as debentures over the assets held by those companies, which means no impairment, dilution or loss of security for the Senior Lenders or the Mezzanine Lenders. DBRS will continue to monitor the development of the restructuring and will provide a further update on the transaction once the process is complete.
All figures are in British pound sterling 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 CBRE Loan Services Limited quarterly servicer reports.
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 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.
This is the first rating action since the Initial Rating Date.
The lead analyst responsibilities for this transaction have been transferred to Dinesh Thapar.
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 net cash flow (NCF), expected rating of Class A Notes to AAA (sf)
--20% decline in DBRS NCF, expected rating of Class A Notes to AA (sf)
Class B Notes Risk Sensitivity:
--10% decline in DBRS NCF, expected rating of Class B Notes to A (sf)
--20% decline in DBRS NCF, expected rating of Class B Notes to A (low) (sf)
Class C Notes Risk Sensitivity:
--10% decline in DBRS NCF, expected rating of Class C Notes to A (low) (sf)
--20% decline in DBRS NCF, expected rating of Class C Notes to BBB (sf)
Class D Notes Risk Sensitivity:
--10% decline in DBRS NCF, expected rating of Class D Notes to BBB (low) (sf)
--20% decline in DBRS NCF, expected rating of Class D Notes to BBB (low) (sf)
Class E Notes Risk Sensitivity:
--10% decline in DBRS NCF, expected rating of Class E Notes to BB (high) (sf)
--20% decline in DBRS NCF, expected rating of Class E Notes to BB (sf)
Class F Notes Risk Sensitivity:
--10% decline in DBRS NCF, expected rating of Class F Notes to BB (sf)
--20% decline in DBRS NCF, expected rating of Class F Notes to B (sf)
Class G Notes Risk Sensitivity:
--10% decline in DBRS NCF, expected rating of Class G Notes to BB (low) (sf)
--20% decline in DBRS NCF, expected rating of Class G Notes to B (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 Limited are subject to EU and US regulations only.
Lead Analyst: Dinesh Thapar, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 8 May 2018
DBRS Ratings Limited
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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.