DBRS Assigns Ratings to DECO 8 and DECO 11

DBRS has today assigned the following ratings to the ultimate payment of any potential interest rate swap (IRS) termination amounts that may be owed by the CMBS trusts to Deutsche Bank AG (Swap Counterparty) in the event of a failure to pay default where the trust is the defaulting party.

-- Deco 8 – Swap ref 1475920L (initial GBP 71.6 million notional), rating of “A”
-- Deco 11 – Swap ref 1696864L (initial GBP 179.3 million notional), rating of “A”
-- Deco 8 – Swap ref 1406167L (initial GBP 208.6 million notional), rating of “A”
-- Deco 8 – Swap ref 3483394L (initial GBP 220.7 million notional), rating of “A”
-- Deco 11 – Swap ref 1696929L (initial GBP 52 million notional), rating of “A”

The interest rate swaps in the CMBS trusts are loan-level swaps that provide for a fixed-rate payment to Deutsche Bank AG in exchange for a floating-rate (LIBOR) payment by Deutsche Bank AG to the trusts. The swaps were intended to protect the individual loans and the capital structure in the CMBS trusts against rises in interest rates. Currently LIBOR rates have fallen since transaction issuance. If these swap contracts were to terminate today, there would be termination payments owed to the Swap Counterparty. As part of the rating analysis, DBRS considers the adequacy of the collateral backing the CMBS trusts to cover the swap termination payments, the performance of the collateral, as well as the quality of the legal and financial structure. When rating swap termination payments, DBRS is assessing the ability of the trust to make the swap termination payments to the counterparty by the legal final maturity date of the transaction.

DBRS uses its CMBS model to assess the recoverability of the value of the swap termination fee to determine if there is sufficient coverage to make these termination payments by the legal final maturity of the CMBS trusts. In these transactions, the swap termination payments owed to the Swap Counterparty are senior in the payment priority to the certificateholders, if the trust is the defaulting party and are also potentially covered by each trust’s respective Liquidity Facility. To calculate the swap termination payments, DBRS first derives the net swap cash flow for each period by comparing (1) the fixed stream of payments from the trust to the swap counterparty against (2) the LIBOR payments that the counterparty would expect to pay to the trust. Next DBRS aggregates the net swap cash flow for all future periods to derive the total potential swap termination payments. In these transactions there is a penalty rate assessed for any unpaid swap termination payments. DBRS uses its unified interest rate model to stress such penalty rate. A rating is only assigned when under such rating scenario there is sufficient coverage of collateral to ultimately pay the swap termination payments should the trusts default on swap payment obligations on any distribution date. The rating does not address (1) the likelihood that a swap termination event occurs on or before the swap termination date, (2) the payment of any swap termination payment owed by Deutsche Bank AG to the trust and (3) termination payments owed by the trusts to Deutsche Bank AG if Deutsche Bank AG is the defaulting party.

Notes:
All figures are in British Pounds Sterling unless otherwise noted.

The applicable methodology is CMBS European Methodology, which can be found on our website under Methodologies.

The ratings are endorsed by DBRS Ratings Limited for use in the European Union.

DBRS’s rating definitions and the terms of use of such ratings are available at www.dbrs.com.