DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings of all classes of the Commercial Mortgage-Backed Floating Rate Notes Due May 2030 (the Notes) issued by Taurus 2018-1 IT S.R.L. (the Issuer) as follows:
-- Class A Notes at AA (low) (sf)
-- Class B Notes at A (sf)
-- Class C Notes at BBB (sf)
-- Class D Notes at BB (high) (sf)
-- Class E Notes at BB (low) (sf)
The trend on Class A remains Stable while the trends on Class B through E remain Negative.
Despite the Coronavirus Disease (COVID-19) pandemic, DBRS Morningstar confirmed its ratings as it does not foresee there to be any immediate negative loan performance or loan default risk that could result in immediate reliance on property market values. Nevertheless, DBRS Morningstar remains cautious about its outlook of the transaction, as the operational impact of coronavirus on the Bel Air loan is starting to emerge as the tenants’ due dates to pay the April, May, and June rent have been postponed. Additionally, the lease negotiation of the Peschiera 1 asset (the largest asset in the portfolio secured against the Logo loan) has not yet concluded. Therefore, the Negative trends on the junior classes are maintained.
Taurus 2018-IT S.R.L. is a EUR 336.6 million securitisation of three floating-rate senior commercial real estate loans (the Camelot loan, the Bel Air loan, and the Logo loan) advanced by BAML International Limited, Milan Branch for the Camelot and Bel Air loans and BAML International Limited for the Logo loan. Both the Camelot and Bel Air loans were used for acquisition financing whereas the Logo loan was used for refinancing. The Camelot and Logo loans are backed by Italian logistics assets (sponsored by Blackstone and managed by Logicor), while the Bel Air loan is backed by Italian retail properties (sponsored by Partners Group L.P. and managed by Kryalos Asset Management).
As of 17 February 2020, the properties securing the three loans have increased in value, bringing down their loan-to-value (LTV) ratios to 48.2% for Bel Air and 56.2% for Logo. Camelot’s LTV decreased further to 65.8% because of a partial EUR 5.3 million prepayment linked to the noncompletion of a development project at the Massalengo I asset. The transaction-level leverage is currently 59.4% compared with 65.7% at issuance. The Camelot and Logo loans had their first maturity dates in February and May 2020, respectively, but both have been extended to 2021, while the Bel Air loan has its first maturity date in May 2021. Currently, all three loans have two one-year extension options that can be exercised as long as the extension notice is delivered on time, the borrower has purchased hedging, and the loan is not in default. DBRS Morningstar does not foresee any particular difficulties for the Camelot and Logo borrowers to exercise their extension rights because of the lack of default financial covenants. The Bel Air borrower, instead, still needs to meet its 70.0% LTV and 9.0% debt yield (DY) default financial covenants in order to exercise its extension option before the February 2021 first loan maturity. The February 2020 investor report stated Bel Air’s LTV and DY were 48.2% and 13.1%, respectively, which currently leaves headroom for the borrower to remain compliant with the loan covenants. However, if the Italian retail market does not recover from the impact of the coronavirus pandemic in 2021, it is still possible for the Bel Air loan to trigger a credit event and come under refinancing pressure.
DBRS Morningstar commented on this transaction in its previous press release titled, “DBRS Morningstar Changes Trend to Negative from Stable on Four Italian Retail CMBS Transactions“ dated 24 March 2020. Since, the Bel Air loan sponsor rescheduled its tenants’ April-to-June rent payments to monthly in arrears from quarterly in advance. The tenants will also benefit from a deferral of April’s rent to the last quarter in 2020. At present time, DBRS Morningstar is not aware of any further amendment or waiver to the terms of the leases that might have an immediate impact on the cash flow of the loan and transaction.
The Logo loan’s borrower has served notice in Q2 2019 to the biggest tenant TNT/FedEx to terminate the tenants’ leases at the Verona and Peschiera 1 properties on 31 January 2020 and 31 August 2020, respectively. DBRS Morningstar understood that a new lease for the Verona asset has been signed at a slightly higher rent for a six-year term with one six-year renewal option. However, the lease negotiation for the Peschiera 1 asset at Linate airport in Milan is still ongoing. Given the prime logistic location of the Peschiera 1 asset, DBRS Morningstar remains optimistic about the outcome of such negotiation and has maintained its underwriting assumptions at issuance. In addition, DBRS Morningstar is still waiting confirmation from the servicer about whether the expiring rental income from the TNT leases for the Verona and Peschiera 1 assets have been included in full for the calculation of the loan DY covenant in the last few quarters. In DBRS Morningstar’s view, the rental income from such properties should only been included up to the break dates on the 31 January 2020 and 31 August 2020, respectively, which would have been expected to trigger the breach of the DY cash trap covenant.
The Camelot loan, which is the largest loan in the transaction (comprising approximately 59% of the outstanding pool balance), continues to perform in line with expectations, as most of its largest tenants are logistics companies that were allowed to trade during the national lockdown in Italy. This is expected to provide some cash flow security and stability in the coming quarters.
On 16 April 2020, the DBRS Morningstar Sovereign group published its outlook on the impact to key economic indicators for the 2020-22 time frame. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/359679/global-macroeconomic-scenarios-implications-for-credit-ratings and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
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.
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.
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 cash manager and investor reports to Q4 2019 from Securitisation Services S.p.A. and CBRE Loan Servicing Limited.
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 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.
The last rating action on this transaction took place on 26 March 2020, when DBRS Morningstar changed the trends on Class B through E to Negative from Stable.
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 rating, DBRS Morningstar 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 Morningstar net cash flow (NCF), expected rating of Class A Notes to A (low) (sf)
--20% decline in DBRS Morningstar NCF, expected rating of Class A Notes to BBB (sf)
Class B Notes Risk Sensitivity:
--10% decline in DBRS Morningstar NCF, expected rating of Class B Notes to BBB (sf)
--20% decline in DBRS Morningstar NCF, expected rating of Class B Notes to BB (high) (sf)
Class C Notes Risk Sensitivity:
--10% decline in DBRS Morningstar NCF, expected rating of Class C Notes to BB (high) (sf)
--20% decline in DBRS Morningstar NCF, expected rating of Class C Notes to BB (sf)
Class D Notes Risk Sensitivity:
--10% decline in DBRS Morningstar NCF, expected rating of Class D Notes to B (high) (sf)
--20% decline in DBRS Morningstar NCF, expected rating of Class D Notes to CCC (sf)
Class E Notes Risk Sensitivity:
--10% decline in DBRS Morningstar NCF, expected rating of Class E Notes to CCC (sf)
--20% decline in DBRS Morningstar NCF, expected rating of Class E Notes to CCC (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: 24 April 2018
DBRS Ratings GmbH
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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.
Note: This press release was shortly replaced after publication to address editorial concerns.