DBRS Takes Rating Actions on Taurus CMBS (Pan-European) 2007-1 Limited

DBRS Ratings Limited (DBRS) took the following rating actions on the Commercial Mortgage-Backed Floating-Rate Notes Due February 2020 issued by Taurus CMBS (Pan-European) 2007-1 Limited (the Issuer):

-- Class A2 was discontinued following the full repayment of the notes
-- Class B upgraded to B (sf) from CCC (sf)
-- Class C confirmed at CCC (sf)
-- Class D confirmed at C (sf)

The Class B, C and D notes have interests in arrears and their ratings do not carry any trends. DBRS discontinued its rating on the Class A2 notes following the full repayment of the notes on the May 2018 interest payment date (IPD).

The upgrade of the Class B notes reflects the further deleveraging and expected recoveries for the defaulted Fishman JEC loan. Since the last review, the Hutley loan has repaid in full and the sale of Fishman JEC portfolio’s Paris asset (Chateau des Rentiers) led to a higher-than-expected repayment proceeds of EUR 71.9 million, of which approximately EUR 54.9 million of repayment proceeds were distributed on the February 2018 IPD while approximately EUR 17.0 million was held in escrow for potential tax liabilities. The sale of the Paris asset was originally scheduled to occur in 2021; however, the acquisition was executed early in December 2017. The earlier-than-expected sale helped the borrowers meet their 2018 repayment target of (7%) set in the safeguard plan adopted in September 2015. Nevertheless, the borrowers are not obliged to make additional principal payments above the yearly amortisation thresholds detailed in the safeguard plan. The threshold for September 2019 payment is 25% of the loan or, according to the servicer, approximately EUR 34.2 million, which is slightly above the EUR 32.7 million outstanding balances of the Class B and C notes. While Class B notes could be fully repaid once the escrowed EUR 17.0 million is released after paying tax liabilities, the Class C and D noteholders still depend on the borrowers to make further disposals, hence the rating confirmations of these classes of notes.

There are interest in arrears on the rated notes because the borrowers are not obliged to pay more than the required amortisation amount whereas the Issuer needs to pay the workout fees following the repayment of Hutley loan and the sale of Chateau des Rentiers asset. As a result, the Issuer did not have sufficient funds to pay full current and previously deferred interest on the August 2018 IPD, thus resulting in interest in arrears on all outstanding classes. As of the August 2018 IPD, the total interest in arrears amounted to EUR 576,718. The most senior class, the Class B notes, had EUR 2,489 interest in arrears.

The transaction’s outstanding balance, as of the August 2018 investor report, was 51.2 million, which represents a 62.6% collateral reduction since issuance. The Fishman JEC loan was transferred to special servicing in May 2014, following the borrower’s initiation of safeguard proceedings, which were accepted by the French Courts in September 2015.

At issuance, the loan was secured by 20 office and industrial properties located throughout France. As of the August 2018 investor report, seven properties remained in the portfolio compared with 13 properties as at the last review (see DBRS press release on the same transaction dated 22 August 2017 for more details). In addition to the Paris asset mentioned above, the Vitry-sur-Seine property was sold with proceeds of EUR 1.75 million distributed to the issuer on the May 2018 IPD. Four Carrefour assets located in Aix en Provence, Carnoux en Provence, Grenoble and Pontcharra were sold for a total price of EUR 5.89 million, which was distributed on the August 2018 IPD. The Fishman JEC portfolio is currently well occupied, reporting a vacancy rate of 2.5% as of the May 2018 IPD. The loan to value ratio and the debt service coverage ratio on the same period were 72.5% and 8.0 times, respectively.

Seven properties remain to be disposed of before the scheduled loan repayment date of December 2020, which is ten months after the legal final maturity of the notes. The sale of Thales portfolio, which comprises three assets in Brest, Meru and Cholet is planned for Q3 2018; the tenant currently is holding over with a six-month rolling lease. Should this sale be concluded at market level, the borrowers are expected to meet their 25% amortisation target in 2019 and thus repay most of the outstanding notes, namely Class B and C. The sales of assets in Limonet, Tull and Onet-le-Château have been postponed whereas the plan for the Vitrolles asset, as previously noted, has not yet been mentioned in the servicing report. Overall, the current market value of remaining assets is above the outstanding note balance at EUR 78.7 million.

The ratings assigned to the Class B and C notes materially deviate from the rating stress levels that the notes can withstand according to DBRS’s direct sizing hurdles, which are a substantial component of the “European CMBS Rating and Surveillance” methodology. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating stress level implied by a substantial component of a rating methodology. In this transaction, the assigned rating reflects the lack of third-party liquidity provisions being available to the Issuer, the upcoming bond maturity in February 2020 and the current interest arrears on the notes.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “European CMBS Rating and Surveillance Methodology”.

DBRS 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.

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

These 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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for the ratings include Wells Fargo Trust Corporation Limited, Link Asset Services and their delegates.

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

At the time of the initial rating, DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

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

DBRS 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 March 13, 2018, when DBRS upgraded Class A2 to BBB (sf) from CCC (sf) and confirmed the ratings of Class B, C and D following a methodology update.

The lead analyst responsibilities for this transaction have been transferred to Rick Shi.

Information regarding DBRS ratings, including definitions, policies and methodologies, is 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 the following ratings in the transaction, as noted below:

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

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

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

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“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 and US regulations only.

Lead Analyst: Rick Shi, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 2 July 2007

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

-- European CMBS Rating and Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.