DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings of the following classes of Commercial Mortgage-Backed Floating-Rate Notes Due July 2024 (the notes) issued by Deco 2014-Tulip Limited (the Issuer):
-- Class A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (sf)
-- Class E at BB (high) (sf)
The Class A, B, C and D notes carry Stable trends, while the Class E notes maintain a Negative trend. The trend on the Class D notes has changed to Stable from Negative.
The Orange loan, the only remaining loan in the transaction, was transferred into special servicing after failing to repay at its maturity in July 2019. The rating confirmations reflect the transaction’s current loan metrics following recent asset disposals. DBRS Morningstar placed negative trends on the Class D and Class E notes in October 2016 as a result of the transaction’s single exposure to the Orange loan, which was secured by secondary retail assets with deteriorating net rental income at the time. The trend change for Class D back to Stable is largely because of the progressive property disposals and the remaining value left in the portfolio.
Deco 2014-Tulip Limited was originally secured by the Windmolen loan, which was repaid in Q1 2015, and the Orange loan. At issuance, the Orange loan was secured by 11 retail properties primarily located in suburban areas of the Netherlands. As of the July 2019 initial payment date (IPD), three properties remain in the portfolio.
According to the asset status report produced by the servicer, two assets were disposed of in August 2019 yielding gross sale proceeds of EUR 32.5 million; the net proceeds will be used to repay the loan on the October 2019 IPD. The remaining three assets in the portfolio are Corio Center in Heerlen, Meubelplein in Leiderdorp and Balcour in Zeist. All three assets are currently being marketed for sale with anticipated completions by Q2 2020, providing the disposal programme remains consensual with the borrower. As of 7 October 2019, the special servicer and the Orange borrower entered into a standstill agreement, whereby they agreed, among other things, to not take any steps to accelerate and enforce the loan before the earlier of (1) the 29 November 2019, (2) a further loan event of default; or (3) a breach of any term of the standstill agreement.
At issuance, DBRS Morningstar commented on the negative trend of the Dutch retail market, which was characterised by increasing vacancies and decreasing rental rates for small-scale strip centres—the asset type that largely made up the Orange portfolio. According to the CBRE Group at the time, the downward trend on the retail market had reached its bottom, with consumer confidence reaching its highest level in 17 years. DBRS Morningstar also observed lower vacancies for prime retail assets in the Randstad region. However, DBRS Morningstar still maintains an overall negative outlook on secondary retail assets that primarily make up the Orange loan’s remaining three assets.
As of August 2019, Colliers International estimated the total market value of the three remaining assets at EUR 48.0 million and a vacant possession value of EUR 31.4 million. The transaction also benefits from EUR 7.0 million currently in escrow, which will be used at the discretion of the special servicer.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “European CMBS Rating and Surveillance Methodology”.
DBRS Morningstar 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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for the ratings include Link Asset Services (UK) and their delegates.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS Morningstar 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 12 October 2018, when DBRS Morningstar confirmed the ratings of the Class A, B, C, D and E notes.
The lead analyst responsibilities for this transaction have been transferred to Christopher Horst.
Information regarding DBRS Morningstar 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 Morningstar 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 Morningstar 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 for each class, respectively:
Class A Notes Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of Class A at AAA (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of Class A at AAA (sf)
Class B Notes Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of Class B at AA (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of Class B at A (high) (sf)
Class C Notes Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of Class C at A (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of Class C at BBB (high) (sf)
Class D Notes Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of Class D at BBB (low) (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of Class D at BB (high) (sf)
Class E Notes Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of Class D at BB (high) (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of Class D at BB (sf)
For further information on DBRS Morningstar 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: 25 September 2014
DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
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.
-- 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 Morningstar 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 email@example.com.