DBRS Morningstar Takes Rating Actions on Taurus 2018-1 IT S.R.L.

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the Commercial Mortgage-Backed Floating Rate Notes Due May 2030 (the Notes) issued by Taurus 2018-1 IT S.R.L. (the Issuer):

-- Class A Notes upgraded to AAA (sf) from AA (low) (sf)
-- Class B Notes upgraded to AA (low) (sf) from A (sf)
-- Class C Notes upgraded to BBB (high) (sf) from BBB (sf)
-- Class D Notes confirmed at BB (high) (sf)
-- Class E Notes confirmed at BB (low) (sf)

DBRS Morningstar also changed the trends on the Class B through Class E Notes to Stable from Negative. The trend on the Class A Notes remains Stable.

The rating upgrades follow the deleveraging of the transaction as of the November 2021 note payment date due to the full repayment of the Logo loan and a partial repayment of the Camelot loan, in addition to signs of stabilisation in the portfolios’ cash flow.

At issuance, the transaction accounted for three floating-rate senior commercial real estate (CRE) loans; however, the Logo loan was fully repaid in September 2021 and the Issuer applied the proceeds of EUR 32.9 million sequentially to the Class A Notes on the November 2021 payment date.

The transaction is a securitisation of EUR 218.76 million of the two remaining floating-rate senior CRE loans, the Camelot loan and the Bel Air loan, advanced by Bank of America Merrill Lynch. The borrowers used both the Camelot and Bel Air loans for acquisition financing. The Camelot loan is backed by Italian logistics assets sponsored by Blackstone Inc. 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 November 2021, the borrower of the Camelot loan disposed of five properties and paid the equivalent release price for those properties. Accordingly, the Issuer applied EUR 54.7 million to the notes: 10% sequentially to the Class A Notes and 90% pro rata to all classes of notes, including the Class A notes. The remaining number of properties in the portfolio is now 11 versus 16 at origination.

The two remining loans in the transaction, the Camelot loan and the Bel Air loan, are currently performing in line with expectations with no financial covenant breaches. The Bel Air loan had a financial covenant waiver in place until the August 2021 interest payment date (IPD), but the covenant requirements were met over the last two quarters. As of the November 2021 IPD, the Camelot borrower reported a loan-to-value (LTV) ratio of 56.79% and a debt yield (DY) of 9.08% versus covenants of 85.0% and 8.25% and cash trap covenants of 80.0% and 8.5%, respectively. The Bel Air borrower reported a LTV of 45.75% and a DY of 14.79% versus default covenants of 70.0% and 10.0% and cash trap covenants of 60.0% and 11.0%, respectively.

The maturity date for both loans had been extended to February 2022 with one more 1-year extension option each remaining. DBRS Morningstar does not foresee any particular difficulties for the Camelot and Bel Air borrowers to exercise their extension rights because of the lack of financial default covenants. The scenario that one of the two loans is fully repaid, would be credit positive for the notes. The transaction has a tail period of seven years from the maximum extended loans repayment date in February 2023; hence, the final note maturity date is 18 May 2030.

DBRS Morningstar updated its underwriting net cash flow (NCF) and DBRS value assumptions for the property portfolios by removing the contributions generated by the assets that were sold, without amending the capitalisation rates it applied. For the Camelot loan, the DBRS Morningstar NCF resulted in a haircut of 12.3% to the Issuer’s current net operating income (NOI) reported at EUR 13.8 million per annum (p.a.) and a 37.7% haircut to the current market value of the portfolio (i.e., EUR 167.0 million versus EUR 267.8 million per CBRE Loan Services Limited (CBRE) in November 2020). For the Bel Air loan, the DBRS Morningstar NCF resulted in a haircut of 33.2% to the Issuer’s current NOI reported at EUR 12.1 million p.a. and a 35.0% haircut to the current market value of the portfolio (i.e., EUR 111.0 million versus EUR 170.8 million per CBRE in November 2020).

The transaction benefits from a liquidity reserve facility of EUR 9.78 million available to classes A and B. Based on a weighted-average note interest rate of 3.16%, DBRS Morningstar estimated that the liquidity reserve would cover 23 months.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to 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 to arise for many CMBS borrowers. In addition, CRE values could be negatively affected, at least in the short term, affecting refinancing prospects for maturing loans and expected recoveries for defaulted loans. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 9 December 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/389454/baseline-macroeconomic-scenarios-for-rated-sovereigns-december-2021-update and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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/381451/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these ratings include servicer reports provided by CBRE 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 on this transaction took place on 14 May 2021, when DBRS Morningstar confirmed the ratings on all classes of notes with Negative trends with the exception of the Stable trend on the Class A Notes.

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

To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios as compared with 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 AA (high) (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of Class A Notes to A (high) (sf)

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

Class C Notes Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of Class C Notes to BBB (low) (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 CCC (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: Daniel Rakhamimov, Assistant Vice President, Credit Ratings
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 24 April 2018

DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500

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.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 (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021), https://www.dbrsmorningstar.com/research/384920/interest-rate-stresses-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021), https://www.dbrsmorningstar.com/research/384624/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].