DBRS Morningstar Confirms Ratings on Taurus 2018-1 IT S.R.L., Changes the Trends on Class B to D Notes to Negative from Stable

DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings on all classes of the Commercial Mortgage-Backed Floating Rate Notes (the Notes) issued by Taurus 2018-1 IT S.R.L. (the Issuer) and changed the trends on the Class B to D Notes to Negative from Stable.

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

The trend on the Class A Notes remained Stable.

The rating confirmations reflect the transaction’s continued stable performance over the last year and improving financial metrics. The trend change reflects macroeconomic volatility concerns and the lack of liquidity, particularly affecting the retail sector in Italy, ahead of the last remaining loan’s expected maturity in February 2023. The borrower proposed a restructure and requested a loan and note extension, which requires noteholders’ written consent via extraordinary resolution. A transaction notice outlining the proposed amendment was published announcing that the first noteholders meeting will be held on 22 December 2022.

The transaction is a securitisation of one floating-rate senior commercial real estate loan (the Bel Air loan). The Logo and Camelot loans that also formed part of the original transaction have been fully repaid since origination. The remaining Bel Air loan, which is sponsored by Partners Group L.P. (Partners Group) and managed by Kryalos Asset Management S.r.l., is currently backed by five shopping centres in Italy.

The outstanding Bel Air loan amount was EUR 78.0 million as of the November 2022 interest payment date (IPD) compared with EUR 110.0 million at the cut-off date in May 2018. This loan was initially backed by a portfolio of six shopping centres. Since then, one property—Primavera shopping centre—was sold in June 2020. A voluntary prepayment of EUR 5 million was made in November 2020 when the loan breached the debt yield (DY) cash trap covenants and an additional prepayment of EUR 4.6 million in cash-trapped funds was applied on the May 2021 IPD. A further amortisation of EUR 200,000 occurred in August 2022 because a small parcel of the Borgogioioso shopping centre was sold.

Based on market value (MV), 65% of the portfolio is located in southern Italy and 35% is located in northern and central Italy. No asset in the portfolio represents more than 35% of the gross rental income (GRI) and 38% of the portfolio’s MV.

The latest servicer report indicates a GRI of EUR 15.4 million as of November 2022, which is 12.7% higher than the GRI reported on the November 2021 IPD. The top 10 tenants represent 25.0% of the GRI and weighted-average lease term is 4.5 years. As of the November 2022 IPD, the occupancy stands at 96.1%. The footfall increased 14% as of the last twelve months (LTM) that ended September 2022 compared with the LTM as of September 2021. Sales have nearly returned to pre-Coronavirus Disease (COVID-19) levels and represent an increase of 15% as of the LTM per September 2022 compared with the LTM per September 2021 and a decrease of 6% compared with the LTM per September 2019.

The portfolio exhibits improving financial metrics in terms of leverage and DY. Due to the loan’s deleveraging, the loan-to-value ratio declined to 42.6% as of the November 2022 IPD, which is based on the most recent valuation of EUR 182.84 million produced by Jon Lang Lasalle dated 31 December 2021, from 51.0% at issuance. The portfolio’s DY climbed to 15.6% as of the November 2022 IPD from 13.4% at issuance. There was no continuing default or cash trap event as of the November 2022 IPD.

DBRS Morningstar previously updated its underwriting net cash flow (NCF) for the Bel Air portfolio by removing the contribution generated by the Primavera asset that was sold without amending the capitalisation rates it applied. DBRS Morningstar maintained its NCF assumption at EUR 8.1 million since origination by deducting only the contribution of the asset sold. In addition, DBRS Morningstar maintained its cap rate assumption at 7.3%, which translates to a DBRS Morningstar value of EUR 110.1 million, representing a 39.3% haircut to the most updated MV.

The loan is non-amortising with bullet repayment at the maturity date in February 2023. The borrower has no further extension options. The loan bears interest at a floating rate equal to three-month Euribor (subject to a floor of zero) plus a margin of 2.5%.

The transaction benefits from a liquidity reserve facility of EUR 3.96 million available to the Class A and Class B Notes. Based on the Euribor cap strike rate of 1.25%, DBRS Morningstar estimated that the liquidity reserve would cover 31 months. Based on the Euribor cap of 4%, DBRS Morningstar estimates that the liquidity reserve would cover 15 months of interest payment shortfalls.

The transaction is structured with a seven-year tail period to allow the special servicer to work out the loans at final legal note maturity in May 2030. DBRS Morningstar believes that the underlying loan’s security structure and jurisdiction provide sufficient time to enforce on the loan collateral, if necessary, and repay the noteholders.

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 euros 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 quarterly reports provided by Securitisation Services S.p.A. and 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 10 December 2021, when DBRS Morningstar upgraded its ratings on the Class A, Class B, and Class C Notes to AAA (sf), AA (low) (sf), and BBB (high) (sf), respectively, and confirmed its ratings on the Class D and Class E Notes at BB (high) (sf) and BB (low) (sf), respectively. At this time, DBRS Morningstar also changed the trends on the Class B to Class E Notes to Stable from Negative. The trend on the Class A Notes remained Stable. A discontinuation of Class E Notes rating followed the Notes repayment occurred in August 2022.

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 Notes Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of Class A Notes to AA (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 (high) (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)

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: 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 Limited for use in the United Kingdom.

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

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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 (22 September 2022),
Interest Rate Stresses for European Structured Finance Transactions | DBRS Morningstar
-- 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].