DBRS Morningstar Places Ratings of Three Continental European CMBS Transactions Under Review with Negative Implications

DBRS Ratings GmbH (DBRS Morningstar) placed its ratings of all remaining classes of notes issued by three euro-denominated CMBS transactions Under Review with Negative Implications.

The rating actions follow DBRS Morningstar’s analysis of the overall risk exposure of the CMBS sector to the Coronavirus Disease (COVID-19) and the resulting conclusion that certain asset classes are more at risk and likely to be affected by the fallout of the pandemic on the economy. The three transactions, listed below, have exposure to the retail sector. The Orange loan in Deco 2014-Tulip Limited is also in special servicing.

Deco 2019 - Vivaldi S.r.l.
-- Class A Notes rated AA (low) (sf)
-- Class B Notes rated A (low) (sf)
-- Class C Notes rated BBB (low) (sf)
-- Class D Notes rated BB (low) (sf)

Pietra Nera Uno S.R.L.
-- Class A Notes rated AA (low) (sf)
-- Class B Notes rated A (low) (sf)
-- Class C Notes rated BBB (low) (sf)
-- Class D Notes rated BB (sf)
-- Class E Notes rated B (high) (sf)

Deco 2014-Tulip Limited
-- Class D Notes rated BBB (sf)
-- Class E Notes rated BB (high) (sf)

Deco 2019 - Vivaldi S.r.l. and Pietra Nera Uno S.R.L. are transactions with loans secured by retail assets in Italy. For transactions with retail exposure, DBRS Morningstar expects that short-term rental income will drop but gradually recover towards the end of 2020, although likely not back to end-2019 levels. DBRS Morningstar expects values will decline amid reduced rental income and widening property yields.

The specially serviced Orange loan in Deco 2014-Tulip Limited is secured by three retail properties in the Netherlands. Although it is in special servicing, the loan still benefits from a low loan-to-value ratio of 45.0% based on a valuation dated August 2019. DBRS Morningstar expects some level of value decline for the defaulted loan should it be revalued today. The outbreak of the Coronavirus Disease (COVID-19) has also halted the property disposal process, thus prolonging the workout process.

DBRS Morningstar typically endeavours to resolve the status of ratings Under Review with Negative Implications as soon as appropriate. If heightened market uncertainty and volatility persist, DBRS Morningstar may extend the Under Review status for a longer period of time.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 22 July 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/364318/global-macroeconomic-scenarios-july-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar’s analysis considered impacts consistent with the moderate scenario in the referenced reports.

On 16 June 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated CMBS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/362693/european-cmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “European CMBS Rating and Surveillance Methodology” (13 December 2019).

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transactions in accordance with the surveillance section of the principal methodology.

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

A review of the transactions’ legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

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

These may be found at: https://www.dbrsmorningstar.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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include servicer reports provided by Situs Asset Management, CBRE Loan Services Limited, and Securitisation Services S.p.A. since issuance.

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

At the time of the initial ratings, 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 for Deco 2019 – Vivaldi S.r.l. and Pietra Nera Uno S.R.L. took place on 20 March 2020, when DBRS Morningstar changed the trend to Negative from Stable on four Italian retail CMBS transactions. The last rating action on Deco 2014-Tulip Limited took place on 27 March 2020 when DBRS Morningstar discontinued ratings on repaid classes.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available at www.dbrsmorningstar.com.

These ratings are Under Review with Negative Implications. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period. If heightened market uncertainty and volatility persist, DBRS Morningstar may extend the Under Review status for a longer period of time. Sensitivity analysis is not applicable.
For further information on DBRS Morningstar’s historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.

Deco 2019 – Vivaldi S.r.l.
Lead Analyst: Rick Shi, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 30 April 2019

Pietra Nera Uno S.R.L.
Lead Analyst: Rick Shi, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 2 February 2018

Deco 2014-Tulip Limited
Lead Analyst: Rick Shi, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 25 September 2014

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The rating methodologies used in the analysis of these transactions can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- European CMBS Rating and Surveillance Methodology (13 December 2019), https://www.dbrsmorningstar.com/research/354637/european-cmbs-rating-and-surveillance-methodology.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019), https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019), https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019),
https://www.dbrsmorningstar.com/research/350907/derivative-criteria-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: https://www.dbrsmorningstar.com/research/278375.

For more information on these credits or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].