DBRS Morningstar Confirms Ratings on Taurus 2021-4 UK DAC with Stable Trends

DBRS Ratings Limited (DBRS Morningstar) confirmed its ratings on the following classes of commercial mortgage-backed floating-rate notes due August 2031 issued by Taurus 2021-4 UK DAC (the Issuer):

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

The trends on all ratings remain Stable.

The confirmations reflect the transaction’s positive performance over the last year as both loans secured in the transaction are performing in line with the terms outlined in their respective facility agreements.

The transaction is a securitisation of GBP 844.0 million at origination in August 2021, comprising two senior commercial real estate loans: the Fulham loan totalling GBP 633.2 million and the United VI loan totalling GBP 210.9 million. The loans were advanced by Bank of America Europe DAC to entities owned and managed by Blackstone Inc. (Blackstone). The loans are secured separately by two portfolios which, in aggregate, comprised 324 light-industrial and logistics assets at cut off. Both loan portfolios are integrated into Blackstone's logistics platform, Mileway. The portfolios are well diversified across all major regions in the UK, with the majority of assets located in and around major UK logistical hubs.

In August 2022, the outstanding aggregate loan amount decreased to GBP 810.7 million following the disposal of 29 properties from the Fulham portfolio while the United VI portfolio remained unchanged. Consequently, the number of properties securing the transaction decreased to 295 from 324 at origination.

FULHAM
The Fulham loan, which accounts for 74% of the pool, was granted to the ten Fulham borrowers with Blackstone as ultimate beneficiary to refinance the existing Fulham loan previously securitised in Taurus 2020-2 UK DAC. At securitisation, the Fulham portfolio comprised 275 predominantly logistics and industrial properties. The portfolio averaged a 90% occupancy with over 2,000 tenants. On the August 2022 interest payment date (IPD), the outstanding loan amount stood at GBP 599.8 million and the number of assets in the portfolio was 246.

The Fulham portfolio is highly granular with mostly urban logistics and multi-let properties, and a few land parcels. The portfolio comprised a total of 14.4 million square feet (sf) as of the August 2022 IPD and it was 92.8% occupied. The largest five tenants represent only 7.1% of the gross rental income (GRI) and the largest tenant, GXO Logistics UK Limited, only accounts for 3.1%. As of August 2022, the GRI stood at GBP 60.8 million. The net rental income (NRI) was 53.2 million in August 2022, accounting for a nonrecoverable costs of GBP 7.6 million. There was positive letting activity over the last quarter, with 35 new tenants signing leases at the properties, generating approximately GBP 971,000 in new rent annually.

As of 31 March 2021, Jones Lang Lasalle Incorporated valued the Fulham portfolio at GBP 974.1 million, including a portfolio premium capped at 5%. This resulted in a loan-to-value (LTV) ratio of 65%. As of August 2022, the portfolio market value of the remaining properties was GBP 925.1 million (GBP 881.05 million plus a GBP 44.05 million premium). The current LTV is 64.8%. There has not been any new valuation since issuance, but the facility agent is in the process of obtaining quotes for a revaluation of the portfolio.

The debt yield for the Fulham loan stands at 8.9% as of the August 2022 IPD and the cash trap covenants were not breached. The loan maturity is on 17 August 2026.

UNITED VI
The United VI loan, which accounts for 26% of the pool, was granted to the six United VI borrowers with Blackstone as ultimate beneficiary to finance and refinance: (1) the acquisition of the portfolio; (2) the indebtedness of members of the group; and (3) general corporate expenses. At securitisation, the United VI portfolio comprised 49 mostly urban logistics, single-let and multi-let properties. The portfolio averaged a 84% occupancy with approximately 250 tenants. On the August 2022 IPD, the outstanding loan amount stood at GBP 210.9 million and the number of assets in the portfolio was unchanged at 49.

The portfolio is geographically diversified across the UK; however, there is significant concentration in the north west, which represents 48% of the total market value (MV). The remaining assets are located in the north east (11% of MV), the south east and London (18%), and the midlands (11%). The portfolio comprises a total of 2.9 million square feet (sf) and it was 90.6% occupied as of the August 2022 IPD. The largest five tenants represent only 4.9% of the GRI with the largest tenant, AAH Pharmaceuticals Limited, accounting for 1.1% of the GRI. As of August 2022, the GRI stood at GBP 15.3 million. The NRI has fluctuated since origination and reached GBP 15.1 million in August 2022, accounting for a nonrecoverable amount of GBP 222,000. During the last quarter, there were seven new incoming tenants, which generate approximately GBP 441,000 in new rent annually.
As of 24 May 2021, Cushman & Wakefield plc valued the United VI portfolio at GBP 319.4 million, including a portfolio premium capped at 5%. At issuance, there were GBP 3.3 million standing credit to the United VI prepayment account, contributing to the LTV calculation at 65.0%.The funds were related to a delayed drawdown property. The funds were cleared as of the May 2022 IPD and are no longer part of the loan for the purposes of the LTV calculation. As a result, the LTV has increased to 66.0% although no valuation has occurred since issuance and there was no disposal of assets from the portfolio. The facility agent is in the process of obtaining quotes for a revaluation of the portfolio.

The debt yield for the United VI loan stands at 7.2% as of the August 2022 IPD and the cash trap covenants were not breached. The loan maturity is on 17 August 2026.

FULHAM AND UNITED VI
DBRS Morningstar’s NCF for the Fulham loan decreased to GBP 46.1 million as of September 2022, down from its initial value of GBP 49.7 million at issuance, accounting for the property disposals. DBRS Morningstar’s NCF for the United VI loan was GBP 13.2 million as of September 2022, unchanged from issuance. As of September 2022, DBRS Morningstar’s value for the properties securing the Fulham and United VI loans was GBP 657.0 million and GBP 210.7 million, respectively.

The transaction features a Class X interest diversion structure; however, no trigger event has occurred since issuance.

On the closing date, the Issuer entered into a liquidity facility agreement with Bank of America, N.A. (BofA), in which BofA made liquidity support of GBP 18 million available. The Issuer liquidity reserve can be used to cover interest shortfalls on the Class A, Class B, and Class C notes. The current liquidity facility balance is GBP 17.2 million. The liquidity reserve amount can provide interest payments on the covered notes for up to 12.6 months based on the interest rate cap strike rate of 1.5% per annum (p.a.) or 6.8 months based on the Sonia cap of 4.0% p.a., respectively.

The transaction is structured with a five-year tail period to allow the special servicer to work out the loans at maturity by August 2031, which is the final legal maturity of the notes.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (17 May 2022).

Notes:
All figures are in British pound sterling unless otherwise noted.

The principal methodology applicable to the ratings is European CMBS Rating and Surveillance Methodology (17 December 2021).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://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/401817/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 data from the servicer report published by Situs Asset Management Limited and the cash management report published by US Bank Global Corporate Trust.

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 21 September 2021, when DBRS Morningstar finalised its provisional ratings on the Class A, Class B, Class C, Class D, Class E, and Class F notes at AAA (sf), AA (low) (sf), A (low) (sf), BBB (low) (sf), BB (low) (sf), and B (high) (sf), respectively, with Stable trends.

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

Sensitivity Analysis: 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 Risk Sensitivity:
-- a 10% decline in DBRS Morningstar’s NCF would lead to an expected rating of the Class A notes at AAA (sf)
-- a 20% decline in DBRS Morningstar’s NCF would lead to an expected rating of the Class A notes at AAA (sf)

Class B Risk Sensitivity:
-- a 10% decline in DBRS Morningstar’s NCF would lead to an expected rating of the Class B notes at A (sf)
-- a 20% decline in DBRS Morningstar’s NCF would lead to an expected rating of the Class B notes at BBB (high) (sf)

Class C Risk Sensitivity:
-- a 10% decline in DBRS Morningstar’s NCF would lead to an expected rating of the Class C notes at BBB (sf)
-- a 20% decline in DBRS Morningstar’s NCF would lead to an expected rating of the Class C notes at BB (high) (sf)

Class D Risk Sensitivity:
-- a 10% decline in DBRS Morningstar’s NCF would lead to an expected rating of the Class D notes at BB (sf)
-- a 20% decline in DBRS Morningstar’s NCF would lead to an expected rating of the Class D notes at B (sf)

Class E Risk Sensitivity:
-- a 10% decline in DBRS Morningstar’s NCF would lead to an expected rating of the Class E notes at B (low) (sf)
-- a 20% decline in DBRS Morningstar’s NCF would lead to an expected rating of the Class E notes at CCC (sf)

Class F Risk Sensitivity:
-- a 10% decline in DBRS Morningstar’s NCF would lead to an expected rating of the Class F notes at CCC (sf)
-- a 20% decline in DBRS Morningstar’s NCF would lead to an expected rating of the Class F notes CCC (sf)

For further information on DBRS Morningstar 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. 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.

These ratings are endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Dinesh Thapar, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 27 July 2021

DBRS Ratings Limited
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Tel. +44 (0) 20 7855 6600
Registered and incorporated under the laws of England and Wales: Company No. 7139960

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

-- European CMBS Rating and Surveillance Methodology (17 December 2021), https://www.dbrsmorningstar.com/research/389947/european-cmbs-rating-and-surveillance-methodology.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021),
https://www.dbrsmorningstar.com/research/384624/derivative-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.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022), https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022), https://www.dbrsmorningstar.com/research/396929/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: https://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].