DBRS Confirms Ratings on Taurus 2015-1 IT S.r.l.

DBRS Ratings Limited (DBRS) has today confirmed its ratings on the following classes of Commercial Mortgage-Backed Floating-Rate Notes Due February 2027 issued by Taurus 2015-1 IT S.r.l.:

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

All trends are Stable.

Taurus 2015-1 IT is a securitisation of three floating-rate commercial real estate loans granted by Bank of America, N.A. Milan Branch to the borrowers. The three loans — Calvino loan, Globe loan and Fashion District loan — had an aggregate balance at issuance date of EUR 301.5 million and are hedged with borrower-level interest rate caps. At origination, the three loans were secured by 14 properties and occupied by over 442 tenants, with the top ten tenant exposures across all properties accounting for 37.1% of the portfolio’s in-place base rental income. Approximately 38.1% of the allocated loan amount is secured by shopping centres anchored by hypermarkets, 28.2% is secured by retail centres, 25.1% is secured by office properties and 8.6% is secured by telephone exchange facilities.

According to the November 2015 Investor Report, during the first quarter of 2015, the office property located at Via Vincenzo Lancia 55 (Turin), which served as a collateral for the Calvino loan was sold with an EUR 24.6 million release amount. The proceeds were applied to pay the outstanding debt representing a loan collateral reduction of 24.4% and a current loan balance for the Calvino loan of EUR 73,049,870. Thus, the current transaction aggregate balance is EUR 276,894,600 or 8.1% lower than at issuance.

Prysmian S.p.A., the second-largest tenant by annual rent of the properties securing the Calvino loan, has already expressed its intention to vacate the property at the end of its lease in April 2017. Although approximately one year of cash flow is expected, the potential increase in vacancy could increase the loan’s cash flow volatility. The loan is sponsored by Cerberus Capital Management L.P., which is both an experienced and knowledgeable operator within the retail sector and the Italian real estate market and is viewed positively by DBRS.

While the majority of the properties are located in northern Italy, the Fashion District loan has significant exposure to southern Italy as the Molfetta Fashion District is located in Molfetta. Molfetta is located in the Province of Bari, which has a lower domestic product per capita and a higher unemployment rate than Italy as a whole. As per the November 2015 investor report, the vacancy in the Molfetta Fashion District increased to 28.7% from a relatively high vacancy rate of 24.9% at issuance. This property represents 37.8% of the allocated loan amount of the Fashion District loan. This loan is cross-collateralised with the Mantova Fashion District, which is an outlet village located in northern Italy and is a strong performing retail centre in the region.

The assets are all located in Italy, and the loss severity of the loans in the event of default may be greater, given the expected enforcement timing in Italy. The time required to enforce loans in Italy typically takes much longer than in other jurisdictions, such as the United Kingdom and Germany. Traditional judicial-led loan enforcement methods in Italy can take many years, which increases loan enforcement costs and can reduce loan recoveries. DBRS took the sovereign stress into consideration by adjusting the sizing hurdles used for its ratings. Additionally, DBRS noted that the Republic of Italy’s A (low) sovereign rating could come under pressure if additional political instability, weak growth prospects or high funding costs delayed the stabilisation of the debt trajectory. Specific pressure of the sovereign rating on commercial real estate would result in higher investment yields and, ultimately, higher capitalisation rates and borrowing costs, which could translate into elevated refinance risk and pressure on the property valuations of the portfolio.

The updated DBRS net cash flow, resulting from the collateral reduction after the property disposal, has decreased by 8.6% to EUR 26.3 million from EUR 28.8 million at issuance. As a result, the DBRS stressed value is now EUR 324.9 million, approximately 27.9% below the appraiser’s stressed value for the portfolio as a whole and in line with the 26.6% DBRS value haircut at issuance.

Every quarter, the three loans are subject to interest coverage ratio and loan-to-value covenant tests. As per the most recent investor report, all ratios exceed the thresholds required by each loan agreement and none of them are at risk of being triggered at this point in time.

The final legal maturity of the Notes is in February 2027, 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 by DBRS to the Notes are based exclusively on the credit provided by the transaction structure and underlying trust assets. All classes will continue to 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 principal methodology applicable is: European CMBS Surveillance.

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’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of information used for these ratings include the Delegate Servicer, Mount Street Mortgage Servicing Limited.

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

DBRS considers the information available to it for the purposes of providing these ratings was of satisfactory quality.

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.

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

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of 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 A (high) (sf)
-- 20% decline in DBRS NCF, expected rating of Class A at BBB (high) (sf)

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

Class C Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class C at B (low) (sf)
-- 20% decline in DBRS NCF, expected rating of Class C at Not Rated (NR)

Class D Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class D at NR
-- 20% decline in DBRS NCF, expected rating of Class D at NR

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS’s outlooks and ratings are monitored.

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: 9 February 2015
Initial Rating Committee Chair: Mary Jane Potthoff, Managing Director, Global CMBS

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

DBRS Ratings Limited
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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.