DBRS Ratings Limited (DBRS) finalised the following provisional ratings on the notes issued by Taurus 2019-2 UK Designated Activity Company (Taurus 2019-2 UK DAC; the Issuer):
--Class A rated AAA (sf)
--Class B rated AA (low) (sf)
--Class C rated A (low) (sf)
--Class D rated BBB (low) (sf)
--Class E rated BB (low) (sf)
All trends are Stable.
Taurus 2019-2 UK DAC is a securitisation of a 92.1% interest in a GBP 418.1 million (63.9% loan-to-value or LTV) five-year senior commercial real estate facility advanced by Bank of America Merrill Lynch International DAC (BofA Merrill Lynch DAC) to refinance the indebtedness of 126 urban logistic and multi-let industrial properties in the United Kingdom, which are ultimately owned by Blackstone Group Inc. (Blackstone).
The 126 assets securing the loan are held by three borrowers: Treforest Trustee (Jersey) Limited, Sunflower UK Logistics Propco S.a.r.l. and Sunflower Estate (GP) Limited. Additionally, Planeta Industries S.A. has provided a co-terminus GBP 65.0 million mezzanine term loan with an LTV of 73.9%. However, the mezzanine loan is structurally and contractually subordinated to the senior facility and is not part of the transaction.
Blackstone acquired the collateral for the loan from Brockton Capital (Brockton) in August 2017 for a purchase price of approximately GBP 560.0 million. It was subsequently securitised in the DBRS-rated Taurus 2017-2 UK DAC transaction, which has performed within DBRS’s expectations since issuance. Brockton accumulated the assets by combining three portfolios it had purchased between 2013 and 2015.
As of the 30 April 2019 cut-off date, the portfolio generated a total of GBP 38.4 million gross rental income from 126 assets. The portfolio’s net rent (pre-rent free) is reported to be GBP 36.7 million, translating into a day-one debt-yield (DY) of approximately 8.8%. As of the cut-off date, the senior loan’s Issuer LTV was 63.9% while its market value (MV) was GBP 653.8 million.
Cushman & Wakefield (the valuer) valued the assets individually at GBP 622.7 million (67.1% LTV) but applied a portfolio premium of 7.5% for a total value of GBP 669.5 million (62.4% LTV); however, the Issuer has capped the premium at 5.0%, and accordingly valued the portfolio at GBP 653.8 million (63.9% LTV). The only change in the underlying collateral compared with the Taurus 2017-2 UK DAC securitisation was the sale of one asset, 30-64 Pennywell Road, which is located in Bristol and had an MV of GBP 2.6 million.
The DBRS net cash flow (NCF) for the portfolio is GBP 29.0 million, which represents a 20.9% haircut to the pre-rent-free net operating income by the arranger. DBRS applied a blended capitalisation rate of 6.54% to the aggregate DBRS NCF to arrive at the DBRS stressed value of GBP 443.7 million, which represents a 33.7% discount to the MV of the portfolio provided by the valuer.
The loan carries a floating interest rate with a LIBOR benchmark providing an interest rate coverage in the range of >2.0x at the hedged rate and >2.5x at current LIBOR. The loan is 95.0% hedged with a LIBOR interest cap with a strike rate of 1.75%. The cap is provided by Bank of America N.A., London branch.
The CMBS transaction benefits from a liquidity facility provided by Bank of America N.A., London branch that can be used to cover interest shortfalls on the Class A and Class B notes. The initial liquidity facility commitment amount is GBP 8.0 million and equals 3.6% of the total outstanding balance of the covered notes. According to DBRS’s analysis, the commitment amount is the equivalent to approximately 12.6 months and 6.4 months of coverage on the covered notes based on the cap rate of 1.75% and the LIBOR notes cap of 5.0% after loan maturity, respectively.
In addition to the liquidity reserve, the transaction also features a GBP 50,000 Issuer reserve to cover the Issuer’s senior expenses.
The Class E notes are subject to an available funds cap where the shortfall is attributable to interest due on the loan not being sufficient to pay senior costs and interest due on the notes.
The loan’s expected maturity is on 15 November 2021. However, the borrower can exercise three one-year extension options provided that the following conditions have been met: (1) there is no payment default and (2) the transaction is compliant with the required hedging conditions. The loan’s final maturity date is on or before 15 November 2024. A special servicing transfer event will occur should the loan fail to be repaid by its maturity. The transaction has a five-year tail period to allow the special servicer to work out the loan by November 2029 at the latest, which is the legal final maturity of the notes.
The transaction includes a Class X diversion trigger event, meaning that if the Class X diversion triggers — set at 6.75% for DY and 78.9% for LTV — were breached, any interest and prepayment fees due to the Class X noteholders will instead be paid directly to the Issuer transaction account and credited to the Class X diversion ledger. However, such funds can potentially be used to amortise the notes only following a sequential payment trigger event or the delivery of a note acceleration notice.
BofA Merrill Lynch DAC sold 92.1% of the senior facilities to the Issuer and retains an ongoing material economic interest of no less than 5.0% to maintain compliance with applicable regulatory requirements.
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 principal methodology.
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 “Global Methodology for Rating Sovereign Governments” at: https://ww.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for the ratings include Bank of America Merrill Lynch International DAC 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 concern 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 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 at AAA (sf)
-- 20% decline in DBRS NCF, expected rating of Class A at AA (high) (sf)
Class B Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class B at A (low) (sf)
-- 20% decline in DBRS NCF, expected rating of Class B at BBB (sf)
Class C Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class C at BBB (low) (sf)
-- 20% decline in DBRS NCF, expected rating of Class C at BB (high) (sf)
Class D Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class D at BB (low) (sf)
-- 20% decline in DBRS NCF, expected rating of Class D at B (low) (sf)
Class E Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class E at B (low) (sf)
-- 20% decline in DBRS NCF, expected rating of Class E at CCC (low) (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: Mirco Iacobucci, Senior Vice President, Head of European CMBS
Rating Committee Chair: Christian Aufsatz, Managing Director, Head of European Structured Finance
Initial Rating Date: 28 August 2019
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 firstname.lastname@example.org.