DBRS Morningstar Confirms Credit Ratings on Taurus 2021-4 UK DAC, Maintains Stable Trend

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

-- 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 stable performance over the past year with both loans secured in the transaction 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 interest-only, 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 May 2023, the outstanding aggregate loan amount decreased to GBP 797.9 million following the disposal of 39 properties from the Fulham portfolio as of the May 2023 interest payment date (IPD) while the United VI portfolio remained unchanged. Consequently, the number of properties securing the transaction decreased to 285 from 324 at origination.

FULHAM
The Fulham loan, which accounts for 73.6% 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 May 2023 IPD, the outstanding loan amount stood at GBP 587.0 million and the number of assets in the portfolio was 236.

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 14.1 million square feet (sf) as of the May 2023 IPD and it was 92.1% occupied. The largest five tenants represent only 6.7% of the gross rental income (GRI) and the largest tenant, GXO Logistics UK Limited, only accounts for 2.9%. As of May 2023, the GRI stood at GBP 63.6 million, up from GBP 61.3 reported on the May 2022 IPD in spite of the 12 property disposals that took place during this time. The net rental income (NRI) was GBP 58.7 million in May 2023, also showing improvement over the May 2022 figure of GBP 54.0 million. Given the increase in NRI, Debt Yield (DY) improved over this period as well, having increased to 10.0% from 9.0%. There was positive letting activity over the quarter ending May 2023, with 45 new tenants signing leases at the properties, generating approximately GBP 1.09 million in new rent annually.

A new valuation was provided by Jones Lang Lasalle Limited (JLL) since DBRS Morningstar’s last round of surveillance. The valuation dated 30 November 2022 indicates a portfolio value of GBP 959.8 million, including a portfolio premium of 2.25%. The aggregated value of the individual assets stands at GBP 938.7 million per the new appraisal report. This represents an increase of 8.0% over JLL’s previous valuation dated 31 March 2021 on a like-for-like basis.

The servicer report dated May 2023 indicates an LTV of 64.8%, which does not incorporate the new valuation figures. However, based on DBRS Morningstar’s calculation and accounting for all the property disposals that took place as of May 2023, DBRS Morningstar estimates an LTV of 61.5% based on the May 2023 loan balance and the most recent market valuation including the portfolio premium.

The cash trap covenants were not breached since issuance. The loan maturity is on 17 August 2026.

UNITED VI
The United VI loan, which accounts for 26.5% 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 an 84% occupancy with approximately 250 tenants. On the August 2023 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 47% of the total market value (MV). The remaining assets are located in the north east (25% of MV), the south east and London (17%), and the midlands (11%). The portfolio comprises a total of 2.9 million square feet (sf) and it was 98.8% occupied as of the May 2023 IPD, up from the 90.8% occupancy reported in May 2022. Over this period GRI increased to GBP 19.0 million from GBP 16.1 million and NRI increased to GBP 17.0 million from GBP 16.2 million. The tenancy is granular with the largest five tenants representing only 4.7% of the GRI and the largest tenant, AAH Pharmaceuticals Limited, accounting for 1.1% of the GRI as of the May 2023 IPD. According to the May 2023 servicer report, there are 22 new incoming tenants, which will generate approximately GBP 868K in new rent annually.

The servicer reports an LTV of 66.0% in the May 2023 servicer report. Similar to the Fulham loan, this figure does not incorporate the most recent valuation figures. Savills Advisory Services Limited (Savills) provided the most recent valuation of the portfolio and valued the collateral at GBP 304.4 million as of 31 January 2023. Savills did not include a portfolio premium in their valuation of the portfolio. The resulting LTV is 69.29% based on DBRS Morningstar’s calculation using the most recent market value. This represents an increase over the May 2023 LTV of 66.0% due to the lack of a portfolio premium in the January 2023 valuation.

Cushman & Wakefield plc provided the initial valuation of the portfolio and valued the collateral at GBP 319.4 million as of 24 May 2021 including a portfolio premium capped at 5%. The May 2023 LTV figure is calculated based on this figure. Not including a portfolio premium, the initial value of the portfolio stood at GBP 304.1 million, which is in line with the most recent valuation of GBP 304.4 million.

The debt yield for the United VI loan stands at 8.1% as of the May 2023 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 45.4 million as of September 2023, 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 2023, unchanged from issuance. As of September 2023, DBRS Morningstar’s value for the properties securing the Fulham and United VI loans was GBP 646.2 million and GBP 210.7 million, respectively. DBRS Morningstar’s value for the Fulham portfolio represents a 32.3% haircut to the most recent valuation and results in a DBRS Morningstar LTV of 90.8%. DBRS Morningstar’s value for the United VI portfolio represents a 30.8% haircut to the most recent valuation and results in a DBRS Morningstar LTV of 100.1%.

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 liquidity facility balance currently stands at GBP 17.0 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.

DBRS Morningstar’s credit rating on Taurus 2021-4 UK DAC addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, Sonia Excess Amounts, Pro-Rata Default Interest Amounts and Note Prepayment Fees.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a relevant or significant 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/416784.

Notes:
All figures are in British Pound Sterling unless otherwise noted.

The principal methodology applicable to the credit ratings is:
“European CMBS Rating and Surveillance Methodology” (14 December 2022);
https://www.dbrsmorningstar.com/research/407379/european-cmbs-rating-and-surveillance-methodology.

Other methodologies referenced in this transaction are listed at the end of this press release.

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 credit rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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.

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 .

The sources of data and information used for these credit ratings include the servicer reports published by Situs Asset Management Limited, the cash management reports published by US Bank Global Corporate Trust, valuation reports by Jones Lang LaSalle Limited, Savills Advisory Services Limited, and Cushman & Wakefield plc.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial credit ratings, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

The last credit rating action on this transaction took place on 28 September 22022, when DBRS Morningstar confirmed its credit ratings on all classes of notes issued by Taurus 2021-4 UK DAC and maintained Stable trends.

The lead analyst responsibilities for this transaction have been transferred to Deniz Gokce.

Information regarding DBRS Morningstar credit 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 credit rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit rating (the Base Case):

Class A Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of the Class A notes at AAA (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of the Class A notes at AAA (sf)

Class B Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of the Class B notes at A(sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of the Class B notes at BBB (high) (sf)

Class C Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of the Class C notes at BBB (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of the Class C notes at BB (high) (sf)

Class D Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of the Class D notes at BB (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of the Class D notes at B (sf)

Class E Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of the Class E notes at B (low) (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of the Class E notes at below B (low) (sf)

Class F Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of the Class F notes at below B (low) (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of the Class F notes at below B (low) (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://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

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

Lead Analyst: Deniz Gokce, Senior Analyst, Credit Ratings
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 27 July 2021

DBRS Ratings Limited
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Registered and incorporated under the laws of England and Wales: Company No. 7139960

The credit 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 (14 December 2022),
https://www.dbrsmorningstar.com/research/407379/european-cmbs-rating-and-surveillance-methodology.
Interest Rate Stresses for European Structured Finance Transactions (15 September 2023),
https://www.dbrsmorningstar.com/research/420602/interest-rate-stresses-for-european-structured-finance-transactions.
Derivative Criteria for European Structured Finance Transactions (18 September 2023),
https://www.dbrsmorningstar.com/research/420754/derivative-criteria-for-european-structured-finance-transactions.
Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://www.dbrsmorningstar.com/research/416730/legal-criteria-for-european-structured-finance-transactions.
DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (4 July 2023),
https://www.dbrsmorningstar.com/research/416784/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].