DBRS Morningstar Confirms Ratings on Taurus 2019-1 FR DAC with Stable Trends

DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings on all classes of commercial mortgage-backed floating-rate notes due February 2031 (the notes) issued by Taurus 2019-1 FR DAC (the Issuer) as follows:

-- Class A notes at AAA (sf)
-- Class B notes at AA (high) (sf)
-- Class C notes at A (sf)
-- Class D notes at BBB (high) (sf)
-- Class E notes at BBB (low) (sf)

The trends remain Stable on all classes.

RATING RATIONALE

While DBRS Morningstar noticed improving performance metrics, DBRS Morningstar confirmed its ratings on the notes given the upcoming maturity of the loan in January 2024.

The transaction is a securitisation of 95% interest in a EUR 249.6 million floating-rate five-year senior commercial real estate acquisition loan, originated in April 2019 and advanced by the Bank of America Merrill Lynch International DAC (BofAML) to the sponsor in the context of a sale and leaseback operation between the sponsor and Électricité de France S.A. (EDF). BofAML also provided a co-terminus EUR 53.3 million mezzanine term loan, which is structurally and contractually subordinated to the senior loan, and hence not part of the transaction.

The sponsor was originally Colony Capital, which was acquired by Fortress Investment Group (Fortress) in December 2021. The new sponsor agreed to a customary transition services agreement, which was completed in June 2022. Hence, Fortress now fully owns management responsibility. DBRS Morningstar considers Fortress as a strong sponsor and, as a result, did not change the large loan sizing hurdles in its analysis.

The outstanding whole-loan amount decreased to EUR 136.5 million on the February 2023 interest payment date (IPD) from EUR 142.0 million at last year’s review and EUR 249.6 million at inception. On the February 2023 IPD, the portfolio comprised 157 properties compared with 206 at inception. Based on Cushman & Wakefield’s appraisal as of March 2022, the current value of the properties in the portfolio was EUR 249.8 million; therefore, the loan-to-value ratio was 54.6%, down from 54.7% last year review.

The servicer reported Issuer net cash flow (NCF) of EUR 20.5 million and a debt yield of 15% on the February 2023 IPD, up from 14.1% in February 2022 and 12% at issuance. Vacancy stood at 13.6% at the February 2023 IPD, down from 15.6% at the last review in 2022. DBRS Morningstar noted a sharp reduction of the portfolio’s arrears: the 90+ days of rental income and other recoverable expenses in arrears decreased to EUR 0.1 million, down from EUR 1.1 million at the last annual review.

The target loan amount scheduled for the first three years has been met. According to the servicer, there is no outstanding breach of financial covenants or of the cash trap covenants. Furthermore, an amortisation of 1% per annum (p.a.) is due during the fourth and fifth years. DBRS Morningstar noted that the EUR 1.74 million amortisation due on the February 2023 IPD for the fourth year was not included in the cash management report, but this was credit neutral in DBRS Morningstar’s rating analysis.

The portfolio mainly comprises office properties (28.9% of market value) and a mix of office properties and light-industrial assets (70.6%). EDF and its subsidiary, ENEDIS SA, are the main tenants and currently represent 97% of the gross rental income (GRI) while other public-sector tenants represent the remaining 3% of GRI. The assets are located across France with the highest concentration in southeastern France.. The properties securing the senior loan are held by three French borrowers (ColPower SCI, ColPowerSister SAS, and ColMDB SAS).

The loan is a five-year floating-rate loan, with interest based on three-month Euribor plus a margin of 2.16% p.a. The default margin is 2.00% p.a. The loan is hedged with an interest rate cap strike rate of 1.5% p.a. and the hedging covers 95% of the loan amount. The loan matures on 31 January 2024 with no extension option.

During this review, DBRS Morningstar updated its NCF by deducting the income generated by the properties sold from last year review and adjusting the level of the +90 days in arrears in line with the most recent servicer reporting as of February 2023 IPD. The NCF improved to EUR 17.9 million from EUR 17.0 million at the last annual review. This results in a haircut of 10.4% to the Issuer’s NCF. DBRS Morningstar maintained its cap rate assumption at 8.75% since last year’s review. The current DBRS Morningstar value is EUR 205.0 million, which reflects a haircut of 17.9% to the latest available valuation.

The transaction benefits from a liquidity reserve facility of EUR 6.3 million, available for the Class A to Class C notes. Based on the interest hedge rate of 1.6%, DBRS Morningstar estimated that the liquidity reserve would cover 21 months of interest shortfall payments or 14 months if based on the Euribor cap of 5% after loan maturity.

The maturity of the notes is in February 2031, providing a tail period of seven years after loan maturity, which DBRS Morningstar expects to provide sufficient time to work out the loan in case of repayment default.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the “DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings” at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: European CMBS Rating and Surveillance Methodology (14 December 2022), https://www.dbrsmorningstar.com/research/407379/european-cmbs-rating-and-surveillance-methodology.

Other methodologies referenced in this transaction are listed at the end of this press release.

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.

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 Morningstar Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://www.dbrsmorningstar.com/research/401817/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these ratings include quarterly investor reports provided by Situs Asset Management Limited as well as the European Investor Reporting Packages (EIRP) files and the latest available tenancy schedules.

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 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.

The last rating action on this transaction took place on 8 April 2022, when DBRS Morningstar confirmed its rating on the Class A notes at AAA (sf); upgraded its ratings on the Class B, Class C, Class D, and Class E notes to AA (high) (sf), A (sf), BBB (high) (sf), and BBB (low) (sf) from AA (low) (sf), A (low) (sf), BBB (low) (sf), and BB (sf), respectively; and changed the trend on the Class E notes to Stable from Positive while maintaining the Stable trends on the Class A through Class D notes.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the base case):

Class A Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating on Class A notes of AAA (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating on Class A notes of AAA (sf)

Class B Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating on Class B notes of AA (high) (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating on Class B notes of AA (low) (sf)

Class C Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating on Class C notes of A (low) (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating on Class C notes of BBB (high) (sf)

Class D Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating on Class D notes of BBB (high) (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating on Class D notes of BB (high) (sf)

Class E Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating on Class E notes of BBB (low) (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating on Class E notes of BB (high) (sf)

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Patrizia Catanese, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 25 March 2019

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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 (14 December 2022)
https://www.dbrsmorningstar.com/research/407379/european-cmbs-rating-and-surveillance-methodology.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021)
https://www.dbrsmorningstar.com/research/384624/derivative-criteria-for-european-structured-finance-transactions.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022)
https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022)
https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022), https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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 info@dbrsmorningstar.com.