DBRS Morningstar Comments on Interest in Arrears on Class B and Class C Notes of Emerald Italy 2019 SRL

DBRS Ratings GmbH (DBRS Morningstar) notes the deferral of interest due on the Class B and Class C of the commercial mortgage-backed floating-rate notes due September 2030 issued by Emerald Italy 2019 SRL, as per the last interest payment date (IPD). Hence, the two classes of notes carry an Interest in Arrears designation from DBRS Morningstar.

As of the date of publication of this press release, the credit ratings and the outstanding principal balance of the notes are as follows:

-- Class B notes rated BB (low) (sf); EUR 13,133,751
-- Class C notes rated CCC (sf); EUR 19,700,627

The calculation agent’s quarterly report for the September 2023 IPD prepared by Banca Finint S.p.A. shows interest deferrals of EUR 56,344 for the Class B notes and EUR 141,785 for the Class C notes. This is due to the calculation agent concluding that up to June 2023 IPD, loan default interest amounts that have been distributed as pro rata default interest to Classes A through D noteholders should have been used for sequential principal redemption of the notes. Subsequently, certain adjustments were made to the distribution of interest available funds on September 2023 IPD, which led to interest deferrals on the above mentioned classes, while the Class A principal balance decreased by EUR 1.6 million to EUR 45.5 million. There is no interest deferral for the Class D notes, as pro rata default interest that has been previously distributed to Class D is higher than interest accrued on Class D notes in the latest quarter.

The transaction benefits from a liquidity facility available to cover interest shortfalls on the Class A and Class B notes. However, the facility was not used to cover interest payments on Class B notes as the calculation agent determined that the shortfall does not qualify as Interest Shortfall as defined in the Terms and Conditions of the Notes. That is, an interest shortfall is covered by the liquidity facility only if interest available funds, net of any administrative fees, are less than the interest payable on the Class A and Class B notes, which was not the case on September 2023 IPD.

Emerald Italy 2019 SRL has previously experienced an interest shortfall on Class C and Class D on December 2022 IPD when interest available funds were not sufficient to cover interest due on the notes in full. However, the deferred interest was repaid in February 2023.

The retail loan backing Emerald Italy 2019 SRL matured on 15 September 2022 after the extension conditions, including appropriate in-place hedging, were not satisfied. Subsequently, the special servicer agreed to a standstill period with the borrower until 30 April 2024, during which the key terms of the loan will continue to apply, with default interest of 2.0% accruing on all overdue amounts. The floating-rate loan is currently unhedged. As of September 2023, the outstanding loan balance equals to EUR 94.8 million. DBRS Morningstar understands that following the marketing process the borrower is in receipt of offers for purchase of the properties, which are currently under consideration.

Notes:
For details on the Interest in Arrears designation, please refer to the Ratings Actions, Designations, Commentaries, and Press Releases Global Policy and Default Definition on www.dbrsmorningstar.com.

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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (4 July 2023).

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.

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259