DBRS Confirms Ratings on All Classes of Libra (European Loan Conduit No. 31) DAC

DBRS Ratings GmbH (DBRS) confirmed the ratings of the following classes of notes issued by Libra (European Loan Conduit No.31) DAC (the Issuer):

-- Class A1 at AAA (sf)
-- Class A2 at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)

All trends are Stable.

Libra (European Loan Conduit No.31) DAC is the securitisation of an originally EUR 282.5 million (67.5% loan-to-value (LTV) ratio) floating-rate senior commercial real estate loan advanced by Morgan Stanley Bank N.A. The originator has retained EUR 50 million and sold the remaining EUR 232.5 million, or 82% of the senior loan, to the Issuer who in turn transferred a vertical risk retention (VRR) loan interest of EUR 11.6 million (5% of the senior loan) back to Morgan Stanley to comply with the risk retention requirements. Therefore, only EUR 220.9 million of the senior loan (79% of the total senior loan) was backed by the notes at inception. As of the Q2 2019 interest payment date, the outstanding whole loan balance had been reduced to EUR 273.5 million because of the scheduled amortisation and the property disposal of the Korte Stadiunweg property, which brought down the securitised balance to EUR 224.8 million, of which EUR 11.2 million is from the VRR loan and the remaining EUR 213.6 million is backed by notes.

The senior loan refinanced the existing indebtedness of the original sponsors, which were Starwood Capital and M7 Real Estate. Following the issuance, the whole portfolio was sold to Blackstone LLP and the servicer has issued a notification on 26 September 2018 announcing the occurrence of such permitted change of control. It should be noted that as the acquisition occurred on each property-holding obligor level rather than the holding parent level, which was envisaged at inception, an amendment on the senior facility agreement has been passed to allow Blackstone’s acquisition to take place. DBRS viewed the sponsor change as credit neutral and kept its hurdle type the same as at issuance.

After the disposal of the Korte Stadiunweg property, the collateral securing the loan is now composed of 48 light-industrial properties and one office property all spread across in Germany and the Netherlands. In Q2 2019, the portfolio generated a net cash flow (post-capex spending) of EUR 7.6 million (or EUR 24.2 million per year). The projected debt yield is 10.79%, which left ample headroom from the 7.25% cash trap covenant. A new valuation has finalised in March 2019 and reported a total market value (MV) of EUR 429.9 million, which represents a EUR 11.3 million MV increase since issuance. This new valuation has reduced the senior loan’s LTV to 63.54% from 67.5% at issuance.

The servicer has reported a total EUR 3.4 million capex spending since issuance, which the majority (51%) of capex going to North Holland.

Considering the current cash flow generated by the portfolio and capex investment implemented to date, DBRS concluded that the portfolio is performing in line with expectations, hence the rating confirmations.

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: https://www.dbrs.com/research/333487/rating-sovereign-governments.

The sources of data and information used for these ratings include Mount Street Global Limited and Elavon Financial Services DAC.

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

At the time of the initial rating, DBRS was 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.

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

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 market rents, market occupancies in addition to expense ratios, and capital expenditure, would lead to a downgrade in the transaction, as noted below for each class, respectively.

Class A1 Notes Risk Sensitivity:
--10% decline in DBRS NCF, expected rating of Class A Notes to AAA (sf)
--20% decline in DBRS NCF, expected rating of Class A Notes to AA (low) (sf)

Class A2 Notes Risk Sensitivity:
--10% decline in DBRS NCF, expected rating of Class B Notes to A (sf)
--20% decline in DBRS NCF, expected rating of Class B Notes to BBB (high) (sf)

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

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

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

Class E Notes Risk Sensitivity:
--10% decline in DBRS NCF, expected rating of Class D Notes to B (high) (sf)
--20% decline in DBRS NCF, expected rating of Class D Notes to CCC (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 GmbH are subject to EU and US regulations only.

Lead Analyst: Rick Shi, Assistant Vice President
Rating Committee Chair: Erin Stafford. Managing Director
Initial Rating Date: 16 July 2018

DBRS Ratings GmbH
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Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

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

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.