DBRS Changes Trend of Two Classes for Taurus CMBS UK 2014-1

DBRS Ratings Limited (DBRS) has today confirmed all classes of the Commercial Mortgaged-Backed Floating-Rate Notes due May 2022 (the Notes) issued by Taurus CMBS UK 2014-1 Limited, as follows:

Taurus CMBS UK 2014-1 Limited
-- Class A at A (sf)
-- Class B at BBB (sf)
-- Class C at BB (sf)

All trends are Stable with the exception of Class B and C, which have had their trend changed to Negative from Stable.

The decision to change the trend of Classes B and C of the Notes to Negative from Stable is a result of the potential decline in commercial real estate (CRE) property values and the slowdown of investments in the United Kingdom following the EU Referendum vote in June. The collateral for this loan is primarily located in secondary markets in the U.K. and the sponsor’s business plan is to liquidate the properties during the loan term, which could be negatively impacted. Classes B and C are most vulnerable to prolonged value decline during the sponsor’s execution of the business plan. Since closing, 42 properties have been sold, resulting in a 39.6% property collateral reduction. The collateral primarily consists of retail (high street retail, shopping centres and retail warehouses), office and industrial properties. As of the May 2016 remittance report, the outstanding securitised balance has been reduced to GBP 127.7 million and there were 90 properties remaining in the transaction. The sponsor is an affiliate of Apollo Global Management, which purchased the portfolio through various loan foreclosures.

DBRS recently reviewed the transaction on 24 June 2016 and noted that there is rollover risk as 23.7% of contractual income expires on or before April 2017. DBRS applied an additional stress to its NCF to account for this concentration. Additionally, DBRS will monitor the leasing velocity as the current uncertainty may also decrease occupier demand and increase the sponsor’s re-letting costs. The portfolio was last valued in September 2015. The reported value for the 90 properties remaining is GBP 249.8 million, a 4% like-for-like increase since closing. As a result of the release premium paid for disposed properties and the marginal value increase, the reported loan-to-value ratio is 53.8%, down from 65.0% at issuance. DBRS’s current underwritten value represents a 33.7% stress over the CBRE’s appraisal value.

DBRS has completed a review of all DBRS-rated transactions with collateral within the United Kingdom following the recent EU Referendum vote in June. This impact has been addressed on a deal-by-deal basis. For more information on the impact to the U.K. commercial real estate market, please see the press release, “DBRS Takes Several Rating Actions on U.K. CMBS.” Individual press releases are available on www.dbrs.com.

Notes:
All figures are in GBP sterling 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 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, CBRE Loan Services Ltd.

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

DBRS was not supplied with third party assessments. However, this did not impact the rating analysis.

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

The last rating action on this transaction took place on 24 June 2016, when DBRS confirmed all ratings of this transaction.

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

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

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 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 the following ratings in the transaction, as noted below for each class respectively:

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

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

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are generally resolved within a twelve 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
Initial Rating Date: 18 June 2014
Initial Rating Committee Chair: Mary Jane Potthoff

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

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

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.