DBRS Places the Class F Notes of Taurus 2016-1 DEU DAC Under Review with Negative Implications

DBRS Ratings GmbH (DBRS) placed the A (sf) rating of the Class F Commercial Mortgage-Backed Floating-Rate Notes Due November 2026 (Class F Notes) issued by Taurus 2016-1 DEU Designated Activity Company (the Issuer) Under Review with Negative Implications (UR.Neg.) and assigned an Interest in Arrears designation to the Class F Notes. DBRS has, in turn, removed the Stable trend from the Class F Notes.

The Class F Notes were placed UR.Neg. because of the interest paid on the single loan being insufficient to cover Issuer costs and interest due on the notes, creating an interest shortfall on the most junior class, which has resulted in deferred interest on the Class F Notes.

Since loan origination, Blackstone Group LP (the sponsor) has disposed of 43 of the original 55 properties securing the loan. These disposals have led to a substantial pay down of the loan to EUR 38.8 million from EUR 317.1 million at issuance. At issuance, the majority of the assets securing the loan (originally listed as core assets with an original market value of 96.0% of the appraised value) had a release premium of 115.0% of the allocated loan amount, while non-core assets had a 0% release premium. These release premiums for the properties sold caused a significant deleveraging of the loan down to the current loan-to-value (LTV) of 30.3% from 67.5% LTV at issuance, according to DBRS’s calculations. The servicer reported an LTV of 31.9% as of the May 2019 interest payment date. Although the deleveraging of the loan is credit positive for the more senior notes, the interest shortfall on the Class F Notes is expected to continue to increase as the interest collected from the loan no longer covers both the interest owed to all the notes as well as the Issuer costs, many of which are fixed and do not decrease in proportion with the loan’s amortisation.

DBRS understands that the arranger of the transaction is considering potential mitigants to the situation caused by the substantial loan paydown, which led to the insufficient coverage of interest and Issuer costs, despite the loan and underlying collateral performing positively since issuance. DBRS is placing the Class F Notes UR.Neg. and will continue to monitor the situation. The resolution of the UR.Neg rating action will include a review of potential remedies (if any) and an assessment of whether the currently deferred interest on the Class F Notes could ultimately be recovered.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating 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.

DBRS is undertaking a review and will remove the rating from this status as soon as it is appropriate.

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 this rating include CBRE Loan Services Limited quarterly servicer reports and U.S. Bank Global Corporate Trust Services cash manager reports.

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 this rating 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 13 March 2019, when DBRS confirmed all classes with a Stable trend.

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

This rating is Under Review with Negative Implications. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period. The Sensitivity Analysis is not applicable.

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: Christopher Horst, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 24 February 2016

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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.