DBRS Ratings GmbH (DBRS Morningstar) changed the trend on Class E to Positive from Stable and confirmed its ratings on all classes of the Commercial Mortgage-Backed Floating-Rate Notes issued by Taurus 2019-1 FR DAC (the Issuer) as follows:
-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
The trends on Classes A through D remain Stable.
The rating confirmations are based on the stable performance of the transaction metrics since issuance. The fast deleveraging of the portfolio following the disposal of 20 assets also further improves the credit quality of the notes, especially for the most junior Class E, hence the trend change.
The Issuer is the securitisation of 95% interest of a EUR 249.6 million, 65% loan-to-value (LTV) five-year senior commercial real estate acquisition facility advanced by Bank of America Merrill Lynch International DAC (BofAML or the Loan Seller) to Colony Capital (Colony or the sponsor) in the context of a sale-and-lease-back operation between Colony and Électricité de France (EDF). The senior loan was advanced to three French borrowers, and BofAML also provided a co-terminus mezzanine term loan.
At inception, there were 206 assets in the portfolio but as of the Q4 2019 interest payment date (IPD), only 186 assets remained. Two of the 20 disposed assets are the Lyon - Thiers and Nice - Diables Bleus assets, which were the largest and third-largest asset ranked by market value (MV) at issuance, representing 11.2% and 2.8% portfolio MV at issuance, respectively. The remaining disposed properties were of smaller size and weaker asset quality, including 11 of the 16 vacant properties at issuance. The total disposed MV amounts to EUR 75.2 million, which resulted in a loan amount reduction of EUR 62.7 million and deleveraged the senior loan’s LTV to 63.7% from 65%. In addition, the current outstanding loan amount already meets the lowest target loan amount test set in the facility agreement.
As per the Q4 2019 investor report, the largest tenants remained unchanged. However, ENEDIS has vacated eight assets where the tenant’s lease has expired. The sponsor is working to lease or sell these recently vacated properties. The projected net operating income has decreased to EUR 25 million as of February 2020 from EUR 29.8 million at inception. The debt yield, however, has slightly increased to 12.8% from 12.6% at issuance, largely because of the paydowns.
DBRS Morningstar does not expect ENEDIS, which accounts for 77.3% of the total rental income and whose business is to maintain the electricity network in France, to be significantly impacted by the outbreak of Coronavirus Disease (COVID-19). Nevertheless, if the economic disruptions triggered by the pandemic should develop into a prolonged recession, this would likely reduce the liquidity in the commercial real estate market and increase the refinancing risk of the loan at maturity.
The rating currently assigned to the Class E notes is lower than the rating stress the class can withstand as per the output of DBRS Morningstar’s direct sizing hurdles. In this transaction, the assigned rating reflects the external uncertainties caused by the coronavirus pandemic.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “European CMBS Rating and Surveillance Methodology” (13 December 2019).
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 at: http://www.dbrsmorningstar.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.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for these ratings include investor reports from Situs Asset Management and cash manager reports from U.S. Bank Global Corporate Trust.
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.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.
To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
Class A Risk Sensitivity:
-- 10% decline in DBRS Morningstar net cash flow (NCF), expected rating of Class A at AAA (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of Class A at AA (sf)
Class B Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of Class B at A (high) (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of Class B at A (low) (sf)
Class C Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of Class C at BBB (high) (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of Class C at BBB (low) (sf)
Class D Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of Class D at BB (high) (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of Class D at BB (sf)
Class E Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of Class E at BB (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of Class E at BB (low) (sf)
Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.
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 U.S. regulations only.
Lead Analyst: Rick Shi, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 25 March 2019
DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259
The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.
-- European CMBS Rating and Surveillance Methodology (13 December 2019), https://www.dbrsmorningstar.com/research/354637/european-cmbs-rating-and-surveillance-methodology.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019), https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019), https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019), https://www.dbrsmorningstar.com/research/350907/derivative-criteria-for-european-structured-finance-transactions.
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrsmorningstar.com/research/278375.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at firstname.lastname@example.org.