DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings of the following classes of notes due May 2030 issued by Arrow CMBS 2018 DAC (the Issuer):
-- Class A1 at AAA (sf)
-- Class A2 at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (high) (sf)
-- Class F at BB (low) (sf)
All trends are Stable.
The Issuer is the securitisation of an originally EUR 308.2 million (69.7% loan-to-value (LTV) ratio) floating-rate senior commercial real estate loan advanced jointly by Deutsche Bank AG, London Branch and Société Générale, London branch. To maintain compliance with regulatory requirements, the loan sellers jointly hold approximately 5.0% of the senior loan. The loan is secured by 85 commercial real estate assets (down from 89 at issuance), which are predominantly logistics assets and are located in France (69.5% of market value (MV)), Germany (24.0% of MV) and the Netherlands (5.7% of MV). As of the August 2019 interest payment date (IPD), the outstanding whole loan balance had been reduced to EUR 290.1 million (94.1% of the original whole loan balance) because of the disposal of four assets. As a result of the release premiums on the disposed assets, the loan has slightly deleveraged from issuance to 68.1% of LTV as of the August 2019 IPD.
The senior loan refinanced the existing indebtedness of the original borrowers, which are located in France, Luxembourg and the Netherlands and ultimately owned by a joint venture between Blackstone and M7. The sponsor’s business plan is to sell off the non-logistic assets, which totalled 12 at issuance, and to date has successfully sold off four of these assets. The sponsor also plans on investing approximately EUR 21.7 million of capital expenditure on the remaining 77 core assets over a five-year period. Among the larger initiatives currently in progress is replacing the roof of building A at the Hordain asset with a quote on total cost of approximately EUR 1.16 million. At the Chalons-en-Champage asset, there are also plans to waterproof the roof as well as increase safety measures at the asset with a total budget of EUR 1.21 million and approximately EUR 62,000 spent so far as of the latest IPD.
The four assets disposed of were the Chatenay asset (MV EUR 4.92 million and located in France), the Azur asset (MV of 1.88 million also located in France), the Groningen asset (MV of EUR 2.71 million and located in the Netherlands) and the Amsterdam asset (MV of EUR 6.25 million also located in the Netherlands). After the disposals, the remaining assets reported an annualised rental income of EUR 31.97 million, down slightly from the previous quarter of EUR 32.87 million; however, this decrease is mainly because of the disposal of the four assets which reported a combined gross rental income of EUR 879,381 at the closing date of the loan. However, even accounting for the disposal of the four assets, rental income is down slightly from issuance, which is due to the vacancy rate increasing from 9.3% at issuance to 12.7% as of the August 2019 IPD. However, the portfolio is still performing in line with DBRS Morningstar’s expectations at issuance.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “European CMBS Rating and Surveillance Methodology”.
DBRS Morningstar 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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for this rating include Situs Asset Management.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS Morningstar 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 Morningstar 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 Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
A decrease of 10% and 20% in the DBRS Morningstar net cash flow (NCF), derived by looking at comparable market rents, market occupancies in addition to expense ratios, and capital expenditure, would lead to a downgrade in the transaction, as noted below for each class, respectively.
Class A1 Notes Risk Sensitivity:
--10% decline in DBRS Morningstar NCF, expected rating of Class A1 Notes to AA (high) (sf)
--20% decline in DBRS Morningstar NCF, expected rating of Class A1 Notes to A (high) (sf)
Class A2 Notes Risk Sensitivity:
--10% decline in DBRS Morningstar NCF, expected rating of Class A2 Notes to AA (low) (sf)
--20% decline in DBRS Morningstar NCF, expected rating of Class A2 Notes to A (low) (sf)
Class B Notes Risk Sensitivity:
--10% decline in DBRS Morningstar NCF, expected rating of Class B Notes to A (sf)
--20% decline in DBRS Morningstar NCF, expected rating of Class B Notes to BBB (high) (sf)
Class C Notes Risk Sensitivity:
--10% decline in DBRS Morningstar NCF, expected rating of Class C Notes to BBB (sf)
--20% decline in DBRS Morningstar NCF, expected rating of Class C Notes to BB (high) (sf)
Class D Notes Risk Sensitivity:
--10% decline in DBRS Morningstar NCF, expected rating of Class D Notes to BB (high) (sf)
--20% decline in DBRS Morningstar NCF, expected rating of Class D Notes to BB (low) (sf)
Class E Notes Risk Sensitivity:
--10% decline in DBRS Morningstar NCF, expected rating of Class E Notes to BB (low) (sf)
--20% decline in DBRS Morningstar NCF, expected rating of Class E Notes to B (low) (sf)
Class F Notes Risk Sensitivity:
--10% decline in DBRS Morningstar NCF, expected rating of Class F Notes to B (sf)
--20% decline in DBRS Morningstar NCF, expected rating of Class F Notes to below B (low) (sf)
For further information on DBRS Morningstar 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: Christian Aufsatz, Managing Director
Initial Rating Date: 22 November 2018
DBRS Ratings GmbH
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Geschäftsführer: Detlef Scholz
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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 Morningstar 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.