DBRS Morningstar Confirms Ratings of Taurus 2018-1 IT S.R.L.

DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings of all classes of the Commercial Mortgage-Backed Floating Rate Notes Due May 2030 (the Notes) issued by Taurus 2018-1 IT S.R.L. (the Issuer or the Transaction) as follows:

-- Class A Notes at AA (low) (sf)
-- Class B Notes at A (sf)
-- Class C Notes at BBB (sf)
-- Class D Notes at BB (high) (sf)
-- Class E Notes at BB (low) (sf)

The trend on Class A remains Stable while the trends on Class B through E remain Negative.

The rating confirmations reflect that the overall credit quality of the transaction was, as of today, not materially affected by the Coronavirus Disease (COVID-19) pandemic. However, similar to the last review, DBRS Morningstar remains cautious about its outlook of the transaction as the loans are still recovering from the relief measures agreed last year and it remains to be seen if the Bel Air loan meets its financial covenant at the expiry of the covenant waiver period; therefore, the Negative trends were maintained on the mezzanine and junior classes. Class A’s trend remains Stable.

Taurus 2018-IT S.R.L. is a EUR 336.6 million securitisation of three floating-rate senior commercial real estate loans (the Camelot loan, the Bel Air loan, and the Logo loan) advanced by Bank of America Merrill Lynch. Both the Camelot and Bel Air loans were used for acquisition financing whereas the Logo loan was used for refinancing. The Camelot and Logo loans are backed by Italian logistics assets (sponsored by Blackstone and managed by Logicor), while the Bel Air loan is backed by Italian retail properties (sponsored by Partners Group L.P. and managed by Kryalos Asset Management).

As of February 2021, the Transaction had seen an aggregate property market value (MV) increase of 3.8% equalling approximately EUR 21.9 million. Nevertheless, whereas the properties securing the Camelot and Logo loans have registered a MV increase of 12.0% and 10.2%, respectively, the Bel Air portfolio’s MV has actually decreased by 11.7%. As such, the loan-to-value (LTV) ratios of the loans have changed to 58.7% from 65.8% for Camelot; to 48.5% from 45.4% for Bel Air; and to 47.9% from 56.2% for Logo. It should also be noted that the Bel Air borrower has not only sold the biggest asset, the Primavera shopping centre, to prepay a part of the loan, but also made a voluntary prepayment of EUR 5 million. The prepayment proceeds from the Bel Air loan were applied sequentially to amortise the Class A Notes.

All three loans have been extended to 2022 with one more extension option remaining. DBRS Morningstar does not foresee any particular difficulties for the Camelot and Logo borrowers to exercise their extension rights because of the lack of financial default covenants. The Bel Air borrower, instead, will need to meet its 70.0% LTV and 10.0% (tightened from 9%) debt yield (DY) covenants in order to remain in compliance on and from August 2021, when the financial covenant waiver will expire, and to exercise its last extension option before the February 2022 second loan maturity. The February 2021 investor report stated Bel Air’s DY was 9.5%, slightly below the default covenant. Given the 2.6% vacancy rate of the Bel Air properties, the Sponsor needs to effectively manage the rent arrears and make sure tenants are paying deferred rent as agreed or the loan could go into default.

After DBRS Morningstar’s last review, in July 2020 the delegate servicer granted the Bel Air borrower consent to temporarily amend the in-place leases to give a rent suspension for the lockdown period (March 2020 (inclusive) to June 2020 (inclusive)) and rent discount to the relevant tenants having an annual rent higher than EUR 150,000 and to waive the DY financial covenant to the August 2021 test date (inclusive). As a condition of the waiver, the borrower deposited EUR 6.46 million into a blocked reserve account to cover projected opco operating shortfalls, fund operating costs and debt service during the waiver period, and increased dividend restrictions. In DBRS Morningstar’s view, such waiver does not materially affect the loan’s credit quality and the proposed lease changes are in line with market practice seen by DBRS Morningstar. Consequently, no additional stress was applied to the Bel Air loan. However, DBRS Morningstar removed the net cash flow (NCF) and value of the Primavera asset in its analysis and updated its NCF and value assumption of the loan to EUR 8 million and EUR 109.5 million, respectively, compared to EUR 11.0 million NCF and EUR 151.4 million at issuance.

Meanwhile, Blackstone has managed to stabilise the Camelot and Logo loans’ cash flows. Rent deferrals were offered to certain tenants and although several tenants delivered notices in the Camelot loan, most of them regeared their leases. The Logo borrower also finalised the lease negotiation for the Peschiera 1 asset and is expected to come out of cash trap soon. DBRS Morningstar believes the stable performances of these two light industrial loans could sufficiently mitigate the volatility of the Bel Air loan hence the rating confirmations.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many tenants and borrowers. DBRS Morningstar anticipates that vacancy rate increases and cash flow reductions may continue for many CMBS borrowers, some meaningfully. In addition, commercial real estate values of certain sectors are negatively affected, at least in the short term, affecting refinancing prospects for maturing loans and expected recoveries for defaulted loans.

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 updated on 17 March 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/375376/global-macroeconomic-scenarios-march-2021-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar 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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “European CMBS Rating and Surveillance Methodology” (26 February 2021).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: http://www.dbrsmorningstar.com/about/methodologies

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.

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 periodic reports from Banca Finint S.p.A. (former Securitisation Services S.p.A.), CBRE Loan Servicing and valuation reports from CBRE.

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 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 15 May 2020, when DBRS Morningstar confirmed all classes’ ratings and trends.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.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):

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

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

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

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

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

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Rick Shi, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 24 April 2018

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

-- European CMBS Rating and Surveillance Methodology (26 February 2021), https://www.dbrsmorningstar.com/research/374399/european-cmbs-rating-and-surveillance-methodology.
-- Legal Criteria for European Structured Finance Transactions (6 April 2021), https://www.dbrsmorningstar.com/research/376314/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020), https://www.dbrsmorningstar.com/research/367292/interest-rate-stresses-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (24 September 2020), https://www.dbrsmorningstar.com/research/367092/derivative-criteria-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrsmorningstar.com/research/278375.

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