Morningstar DBRS Takes Credit Rating Actions on Taurus 2021-4 UK DAC

DBRS Ratings Limited (Morningstar DBRS) took the following credit rating actions on the commercial mortgage-backed floating-rate notes due August 2031 issued by Taurus 2021-4 UK DAC (the Issuer):

Morningstar DBRS discontinued its credit ratings on the Class A and Class B notes as the notes were redeemed in full on 19 February 2024. Prior to their repayment, Morningstar DBRS’ credit ratings and the outstanding principal balances of the notes were as follows:

-- Class A – AAA (sf); GBP 345,686,799.36
-- Class B – AA (low) (sf); GBP 107,298,196.83

Morningstar DBRS also upgraded its credit ratings on the remaining classes of notes as follows:

-- Class C upgraded to AAA (sf) from A (low) (sf)
-- Class D upgraded to A (low) (sf) from BBB (low) (sf)
-- Class E upgraded to BB (high) (sf) from BB (low) (sf)
-- Class F upgraded to BB (low) (sf) from B (high) (sf)

The trends on all credit ratings remain Stable.

The credit rating upgrades are supported by the deleveraging of one loan on the February 2024 interest payment date (IPD), and the improved performance of the remaining loan securing the transaction.

The transaction is an August 2021 securitisation of GBP 844.0 million loans at origination, 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 cutoff. 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.

The Fulham loan was prepaid in full on 13 February 2024. As a result of the prepayment, an amount equal to GBP 581,384,426 was applied against the notes at the note payment date falling in February 2024.

The remaining outstanding United VI loan’s balance stands at GBP 210.89 million, unchanged since cutoff. The loan is interest only with no scheduled amortization until a permitted change of control (CoC) event. On or after the completion of a CoC, instalments equal to 0.25% of the aggregate outstanding principal balance of the loan, as of the CoC date, will be due on each IPD. No CoC event has occurred till date.

The portfolio comprises 49 mostly urban logistics single-let and multi-let properties. The collateral’s occupancy, net rental income, and debt yield (DY) have increased compared with the figures at cutoff. The loan-to-value (LTV) of the loan stands at 69.29% based on the latest valuation, compared with 65.0% at origination. The latest valuation performed by Savills Advisory Services (Savills) in January 2023 resulted in GBP 304.4 million without including any portfolio premium. In May 2021, Cushman & Wakefield plc (C&W) appraised the properties for an aggregate value of GBP 304.1 million and added a portfolio premium for which the portfolio valuation resulted in GBP 319.4 million. The increase in LTV since issuance is therefore mostly attributable to the lack of a portfolio premium.

No LTV cash trap covenant for the loan has been breached. The loan is currently performing as debt service has been regularly met since origination.

The net rental income for the United VI portfolio increased to GBP 17.72 million as of February 2024 IPD, from GBP 14.71 million at origination. Occupancy showed improvement since issuance, reaching 97.3% (as of the February 2024 IPD) from 84.0% at cutoff. Therefore, DY for the loan stands at 8.4% as of February 2024 IPD, higher than the 7.0% figure at cutoff. No DY cash trap covenant has been breached. The weighted-average unexpired lease term of the portfolio is 4.15 years. Arrears stand at GBP 1.67 million, 77.6% of which is due within 30 days. Approximately GBP 299,000 of capex was spent across the portfolio during the last quarter for two properties.

Morningstar DBRS conducted a new cash flow analysis based on the tenancy schedule dated 31 December 2023 provided by the servicer, Situs Asset Management (Situs). Morningstar DBRS’ assumptions for net cash flow (NCF) improved to GBP 14.8 million compared with GBP 13.2 million earlier. Morningstar DBRS increased the cap rate to 6.5% from 6.25%, while maintaining initial assumptions of occupancy at 10.0% and capex and tenancy improvements at cut-off levels. The pooling credit assumption has been removed, given only one loan remains from the original pool.

Morningstar DBRS’ updated value is GBP 227.85 million, representing a hair-cut of 25.14% compared with Savills’ valuation.

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. Following the Fulham loan repayment, GBP 14.9 million of liquidity facility was cancelled at the February 2024 IPD. Currently, the liquidity reserve amount stands at GBP 1.9 million and is equivalent to 10.6 months based on the interest strike rate of 1.5% p.a., or 6.1 months based on the Sonia cap of 4.0% p.a.

The loan maturity date is in August 2026. The final note maturity is in August 2031. 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.

Morningstar DBRS' credit ratings on Taurus 2021-4 UK DAC address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are interest and principal amounts.

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

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

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the “Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings“, https://dbrs.morningstar.com/research/427030.

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” (17 January 2024), https://dbrs.morningstar.com/research/426818.

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

Morningstar DBRS 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 Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/421590/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these credit ratings include the servicer reports published by Situs, the cash management reports published by US Bank Global Corporate Trust, valuation reports by C&W and Savills.

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

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

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

Morningstar DBRS 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 2023 when Morningstar DBRS confirmed its AAA (sf), AA (low) (sf), A (low) (sf), BBB (low) (sf), BB (low) (sf), and B (high) (sf) credit ratings on the Class A, Class B, Class C, Class D, Class E, and Class F notes, respectively, with Stable trends.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit rating, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit rating (the base case):

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

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

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

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

For further information on Morningstar DBRS 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 Morningstar DBRS 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
Rating Committee Chair: Mark Wilder, Senior Vice President
Initial Rating Date: 27 July 2021

DBRS Ratings Limited
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London EC1Y 1HQ United Kingdom
Tel. +44 (0) 20 7855 6600
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://dbrs.morningstar.com/about/methodologies.

-- European CMBS Rating and Surveillance Methodology (17 January 2024),
https://dbrs.morningstar.com/research/426818
-- Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://dbrs.morningstar.com/research/416730
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023),
https://dbrs.morningstar.com/research/420602
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023),
https://dbrs.morningstar.com/research/420754
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024),
https://dbrs.morningstar.com/research/427030

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/278375.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com