DBRS Morningstar Removes Rating on Class E Notes Issued by Helios (European Loan Conduit No. 37) DAC from Under Review with Negative Implications, Confirms Rating with Negative Trend

DBRS Ratings Limited (DBRS Morningstar) confirmed its rating on the Class E notes issued by Helios (European Loan Conduit No. 37) DAC (the Issuer) at B (high) (sf) with a Negative trend.

DBRS Morningstar also removed the rating from Under Review with Negative Implications, where it was placed on 4 November 2022 due to the shortfall in interest payments to Class E noteholders since the February 2022 interest payment date (IPD) as part of DBRS Morningstar’s annual review of the transaction.

Following the application of the GBP 30 million prepayment of Class A notes in October 2021, excess spread between the note margin (3.18%) and the loan margin (3.25%) reduced which, together with the presence of the senior-ranking issuer costs, have started to eat into the interest amount payable on the Class E notes since the February 2022 IPD.

DBRS Morningstar raised a query to the cash manager regarding the classification of this interest shortfall. The cash manager confirmed that this shortfall triggered the available funds cap provisions on the Class E notes because the weighted average margin (WAM ) increased as a result of the partial prepayment of the Class A notes.

Under this provision, Class E does not receive the full amount of its accrued interest and there is no perpetual accrual of deferred interest. Class E noteholders receive the Class E adjusted interest payment amount and no other interest would be due and payable. As a result, the Class E deferred interest was restated to zero by the cash manager at November 2022 IPD.

Since there is no unpaid interest accumulating on Class E, DBRS Morningstar resolved the Under Review status on the notes and confirmed the rating at B (high) with a Negative trend.

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 rating 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 this rating include Mount Street Mortgage Servicing Limited and U.S. Bank Trustees Limited.

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 this rating 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 4 November 2022, when DBRS Morningstar confirmed its ratings on the Class RFN and Class A to Class D notes, and placed the Class E notes Under Review with Negative Implications.

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 E Risk Sensitivity:
-- 10% decline in DBRS Morningstar net cash flow (NCF), expected rating on the Class E notes at B (low) (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating on the Class E notes at CCC (sf)

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: 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.

This rating is endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Dinesh Thapar, Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 16 December 2019

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.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022), https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022), https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-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].