DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings on all classes of the Commercial Mortgage-Backed Floating Rate Notes Due May 2028 issued by Kantoor Finance 2018 DAC (the Issuer) as follows:
-- Class A Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)
-- Class C Notes at A (low) (sf)
-- Class D Notes at BBB (low) (sf)
-- Class E Notes at BB (low) (sf)
DBRS Morningstar maintains the Stable trends.
The rating confirmations follow an improvement in loan performance in spite of the current Coronavirus Disease (COVID-19) outbreak, which has had little impact on rent collections based on the latest servicer report for the May 2020 interest payment day (IPD).
The transaction comprises two Dutch senior commercial real estate loans – PPF and Iron – which have both deleveraged since issuance. As both loans entered their second year, a 1% amortisation on the initial loan amount per year is due. As such, the PPF loan balance has amortised to EUR 182.7 million from EUR 185.0 million at issuance. In addition to the scheduled amortisation, the Iron loan balance reduced further after the sale of the Wegalaan asset, to EUR 58.0 million from EUR 62.9 million. The Wegalaan asset was originally anchored by Chubb Insurance Company of Europe S.A., which was served a notice to vacate the premises shortly before issuance. Based on the Iron loan facility agreement, a partial cash trap of a maximum EUR 400,000 would take effect following Chubb’s departure. However, since the asset has been sold, the partial cash trap is forfeited. DBRS Morningstar’s updated net cash flow (NCF) assumption to reflect the property disposal amounts to EUR 4.5 million, which translates to a DBRS Morningstar stressed value of EUR 64.6 million, or a 50.0% haircut on the reported market value of EUR 129.3 million as of May 2020 IPD including capital expenditures.
In addition to the new valuation of the Iron loan, which DBRS Morningstar commented on in its last review, a new valuation carried out for the PPF loan in August 2019 concluded a EUR 395.8 million market value for the portfolio, representing a 31% value increase since February 2018. The main contributors to the increase were the lease-up of vacant spaces in Hofplein 19 and 20 and yield compression in the Dutch market. DBRS Morningstar had already made provisions in its issuance analysis for the lease-up of Hofplein 19 and therefore did not adjust its cash flow assumptions. Also, DBRS Morningstar views the yield compression trend is yet to sustain and has hence maintained its value assumption at EUR 224.2 million, which is 43.4% lower than the new valuation.
As commented in its “European CMBS Transactions’ Risk Exposure to Coronavirus (COVID-19) Effect” commentary, DBRS Morningstar thinks the short-term impact of the coronavirus on office properties is relatively more limited. Indeed, on the May 2020 IPD, the Iron loan borrower reported a 94.7% collection rate with less than 1% rent reduction request. The PPF loan borrower did not report the collection rate but is not anticipating any material negative impact on the net cash flow. As the current haircut on the loans largely exceed DBRS Morningstar’s coronavirus-linked office sector medium term value decline assumption, which is based on DBRS Morningstar’s moderate scenario, DBRS Morningstar did not make any coronavirus-related value adjustment in its analysis.
Both loans have a fixed loan term of five years. The Iron borrowers will need to repay by 15 November 2022 and the PPF borrower will need to repay by 15 May 2023. The CMBS note maturity date is 22 May 2028.
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many tenants and borrowers. DBRS Morningstar anticipates that vacancy rate increases and cash flow reductions may arise for many CMBS borrowers, some meaningfully. In addition, commercial real estate values will be negatively affected, at least in the short term, impacting refinancing prospects for maturing loans and expected recoveries for defaulted loans.
On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were updated on 1 June 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/361867/global-macroeconomic-scenarios-june-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
On 16 June 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated CMBS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/362693/european-cmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.
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 these transactions are listed at the end of this press release.
These may be found at: https://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 servicer reports from CBRE Loan Services Ltd, cash manager reports from U.S. Bank Global Corporate Trust Limited Address, and valuation reports from CBRE Valuation & Advisory Services B.V.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial ratings, 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 9 July 2019, when DBRS Morningstar confirmed its ratings on all classes of Kantoor Finance 2018 DAC.
The lead analyst responsibilities for this transaction have been transferred to Rick Shi.
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 ratings (the Base Case):
Class A Notes Risk Sensitivity:
-- a 10% decline in DBRS Morningstar NCF would lead to an expected rating of the Class A Notes at AA (sf)
-- a 20% decline in DBRS Morningstar NCF would lead to an expected rating of the Class A Notes at A (high) (sf)
Class B Notes Risk Sensitivity:
-- a 10% decline in DBRS Morningstar NCF would lead to an expected rating of the Class B Notes at A (low) (sf)
-- a 20% decline in DBRS Morningstar NCF would lead to an expected rating of the Class B Notes at BBB (high) (sf)
Class C Notes Risk Sensitivity:
-- a 10% decline in DBRS Morningstar NCF would lead to an expected rating of the Class C Notes at BBB (sf)
-- a 20% decline in DBRS Morningstar NCF would lead to an expected rating of the Class C Notes at BBB (low) (sf)
Class D Notes Risk Sensitivity:
-- a 10% decline in DBRS Morningstar NCF would lead to an expected rating of the Class D Notes at BB (high) (sf)
-- a 20% decline in DBRS Morningstar NCF would lead to an expected rating of the Class D Notes at BB (low) (sf)
Class E Notes Risk Sensitivity:
-- a 10% decline in DBRS Morningstar NCF would lead to an expected rating of the Class E Notes at BB (sf)
-- a 20% decline in DBRS Morningstar NCF would lead to an expected rating of the Class E Notes at B (sf)
For further information on DBRS Morningstar historical default rates published by theEuropean 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: 13 June 2018
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The rating methodologies used in the analysis of this transaction can be found at: https://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: https://www.dbrsmorningstar.com/research/278375
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at email@example.com.