DBRS Confirms Ratings on Tibet CMBS S.R.L.

DBRS Ratings Limited (DBRS) has today confirmed its ratings on the following classes of Commercial Mortgage-Backed Floating-Rate Notes Due December 2026 issued by Tibet CMBS S.R.L.:

-- Class A at AA (sf)
-- Class B at A (high) (sf)
-- Class C at A (low) (sf)
-- Class D at BB (low) (sf)

All trends are Stable.

Tibet CMBS S.R.L. is the securitisation of a single floating-rate loan granted by Banca IMI S.p.A. to the borrower. At closing, the loan had a securitised balance of EUR 203,000,000. It is hedged with a borrower-level interest rate cap. The borrower is Montenapoleone Retail S.R.L. The sponsor for the loan is Statuto Lux Holding RE S.R.L., an entity ultimately owned and managed by Mr. Giuseppe Statuto, a high net worth Italian national.

The purpose of the loan was to provide refinancing of existing indebtedness, to partially pay closing costs for the loan and for general corporate purposes. The collateral securing this loan consists of a single retail property located on Via Monte Napoleone in central Milan, Italy. The property contains 5,738 square metres of leasable area situated across a lower ground level and five floors above ground.

According to the November 2015 Investor Report, the property continues to be 100% leased to the same five tenants (five luxury retailers) as at issuance. An adjacent luxury hotel leased the top two floors of the building to be used as luxury suites.

DBRS’s underwritten net cash flow (DBRS UW NCF) in Year 1 of the loan was EUR 12.9 million, 1.9% lower than the Issuer’s average projected cash flow over the term of the loan. Per the latest investor report from November 2015, the projected annual rental income for YE2015 is EUR 13,609,167, which is 13.8% higher than the annual rental income of EUR 11,957,708 in YE2014 and 5.7% higher than the DBRS UW NCF figure. The YE2015 projected amount is in line with the Issuer’s expected cash flow for Year 2, but 2.3% lower than the Issuer’s average projected cash flow over the term of the loan, as the leases have future contractual rental uplifts.

Utilising the cash flow assumptions presented above, at issuance DBRS calculated the stressed interest coverage ratio (ICR) for the loan to be 1.35x. As of November 2015, the ICR for the loan was 1.5x. The loan has event of default covenants (actual and prospective ICR) of 1.30x in Year 2 of the loan. DBRS does not anticipate the loan breaching its financial covenants during the term of the loan. DBRS believes that the cash flow from the property will be sufficient for the loan to remain in compliance with the covenanted event of default ICR ratios during the term of the loan.

DTZ valued the property on 1 July 2014, and at that time estimated the market value of the property at EUR 314,700,000. To arrive at this valuation, DTZ applied a 5.5% discount rate to the property’s rental cash flow. DBRS applied a capitalisation rate of 5.7% to its stabilised cash flow. The result was a DBRS Stressed Value of EUR 223,925,410. According to the November 2015 Investor Report, DTZ revalued the property on July 2015 and estimated a current market value of EUR 320,900,000, which represents a 2.0% increase since issuance. The DBRS Value represents a 30.0% haircut to DTZ’s current July 2015 valuation. The current LTV for the loan is 62.9%. The loan has a loan-to-value (LTV) event of default covenant test of a maximum of 70.0% and is not in risk to be breached at this point in time.

The final legal maturity of the Notes is in December 2026, seven years beyond the maturity of the loans. If necessary, this is believed to be sufficient time, given the security structure and jurisdiction of the underlying loans, to enforce on the loan collateral and repay bondholders.

The ratings assigned to the Notes by DBRS are based exclusively on the credit provided by the transaction structure and underlying trust assets. All classes will be subject to ongoing surveillance, which could result in upgrades or downgrades by DBRS after the date of issuance.

Notes:
All figures are in euros unless otherwise noted.

The principle methodology is European CMBS Surveillance Methodology.

The applicable methodologies are European CMBS Surveillance, European CMBS Rating Methodology, Legal Criteria for European Structured Finance Transactions, Derivative Criteria for European Structured Finance Transactions and Unified Interest Rate Model for European Securitisations, which can be found on www.dbrs.com under Methodologies.

Other methodologies referenced in this transaction are listed at the end of this press release. This may be found on www.dbrs.com at http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include the servicer, Credito Fondiario S.p.A.

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS was not supplied with AUP documents. Data checks were performed and DBRS did apply additional cash flow stresses in its scenarios.

DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This is the first rating action since the Initial Rating Date.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):

A decrease of 10% and 20% in the DBRS Net Cash Flow (NCF), derived by looking at comparable properties, market rents, market occupancies in addition to expenses ratios, capital expenditures and re-tenanting costs, would lead to a downgrade in the transaction, as noted below:

Class A Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class A at AA (sf)
-- 20% decline in DBRS NCF, expected rating of Class A at AA (sf)

Class B Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class B at BBB (sf)
-- 20% decline in DBRS NCF, expected rating of Class B at BB (high) (sf)

Class C Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class C at BBB (sf)
-- 20% decline in DBRS NCF, expected rating of Class C at BB (sf)

Class D Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class D at CCC (sf)
-- 20% decline in DBRS NCF, expected rating of Class D at CCC (sf)

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Scott Goedken, Senior Vice President, EU CMBS
Initial Rating Date: 23 January 2015
Initial Rating Committee Chair: Erin Stafford, Managing Director, Global CMBS, Global Structured Finance

Lead Surveillance Analyst: Jorge Lopez Herguido, Financial Analyst, Global CMBS, Global Structured Finance
Rating Committee Chair: Erin Stafford, Managing Director, Global CMBS, Global Structured Finance

DBRS Ratings Limited
1 Minster Court, 10th Floor Mincing Lane, London EC3R 7AA
United Kingdom
Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- European CMBS Surveillance
-- European CMBS Rating Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Unified Interest Rate Model for European Securitisations

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.