Morningstar DBRS Confirms Credit Ratings on Cassia 2022-1 S.R.L.

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on the following commercial mortgage-backed security notes issued by Cassia 2022-1 S.R.L. (the Issuer):

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

All trends are Stable.

The credit ratings address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

CREDIT RATING RATIONALE
The credit rating confirmations reflect the transaction's stable performance over the last 12 months. The loans securing the transaction are performing in line with the provisions of the facility agreements, and no breach of any of the cash trap covenant thresholds has been reported to date.

The transaction is a conduit securitisation arranged by Bank of America Europe DAC (BofA; the vertical risk retention VRR lender) and Goldman Sachs International that comprises two separate commercial real estate (CRE) senior loans (the Thunder II loan and the Jupiter loan) advanced to borrowing entities ultimately owned by The Blackstone Group Inc. (the Sponsor). The transaction was originated in April 2022.

The purpose of the loans was to refinance the existing indebtedness of the related borrowers. In particular, the Thunder II borrower is an Italian closed-end real estate investment fund (REIF) whereas the Jupiter loan borrowers include an Italian REIF, the Jupiter Fund, and two limited liability companies, Mileway Italy 2021 Bidco S.r.l. and Bracchi Immobiliare Logistica S.r.l., which merged in July 2022.

The two loans, totalling EUR 236.4 million as of the November 2024 interest payment date (IPD), are backed by 42 big-box and last-mile logistics properties across Italy. The loans are interest only, and no prepayment has occurred since the loans' utilisation date. Based on the most recent valuations prepared by CBRE Limited (CBRE), the appraised value of the portfolio under special assumption (single-lot sale) was EUR 410.1 million as of 1 July 2024, up from EUR 400.5 million in July 2023 and from EUR 396.2 million as of 1 October 2021. This resulted in a weighted-average (WA) loan-to-value ratio (LTV) of 57.6%, down from 59.0% at the last annual review and from 59.9% at origination.

According to the servicer's reporting as of August 2024 IPD, the WA debt yield (DY) slightly increased to 10.9% from 10.8% at the last annual review, and from 8.6% at the cut-off date. In addition, the net rental income (NRI) generated by the pool improved to EUR 25.8 million, up 1.5% from EUR 25.5 million at the last annual review and 22.1% from EUR 21.2 million at the cut-off date. Morningstar DBRS noted an increased vacancy rate to 16.4% from 6.3% in August 2023, mainly driven by the Thunder II portfolio's vacancy. However, the pool's WA lease term (LT) to expiry remained unchanged at 9.7 years compared with the cut-off figure, with improved rent per square metre, especially for the Thunder II portfolio where the WALT to expiry increased to 10.9 years from 9.2 years at the last annual review and up from 9.7 years at issuance, indicating that the business plan of reversionary rent uplift is underway.

The Thunder II loan is larger by loan amount, accounting for 69.4% of the entire pool with an outstanding balance of EUR 164.0 million whereas the Jupiter loan accounts for 30.6% of the pool with an outstanding balance of EUR 72.4 million.

Each loan bears interest at a floating rate equal to three-month Euribor (subject to zero floor), plus a margin that is a function of the WA of the aggregate interest amounts payable on the notes. As of the last payment date in November 2024, the margin was 3.1763% per annum. The interest rate risk is fully hedged by a prepaid cap provided by Merrill Lynch International in May 2024 with a strike rate of 1.5% for the Thunder II loan and 2.0% for the Jupiter loan. The interest rate cap agreements terminate in May 2025 and are expected to be renewed annually for the remaining term of the loans. Both the senior loans mature in May 2027, which is five years after the cut-off date with no extension options.

The Thunder II loan is secured by 20 logistics assets let to 19 tenants as of the August 2024 IPD. The properties are located in the Northern and Central regions of Italy. In July 2024, CBRE revalued the assets at EUR 284.8 million, up from EUR 275.6 million at the last annual review and EUR 275.3 million at the cut-off date in October 2021. As of the August 2024 IPD, the top five tenants represented 56.3% of the Thunder II portfolio NRI of EUR 16.3 million. Morningstar DBRS maintained its cut-off underwriting assumptions of net cash flow (NCF) at EUR 11.7 million and a cap rate of 6.5%, equating to a Morningstar DBRS Value of EUR 178.9 million, which represents a haircut of 37.2% to the most recent CBRE appraised value. The Morningstar DBRS LTV and DY are 91.7% and 7.1%, respectively.

The Jupiter loan is secured by 22 logistics assets let to 36 tenants as of the August 2024 IPD. The properties mainly surround Milan. In July 2024, CBRE revalued the assets at EUR 125.4 million, slightly up from EUR 124.9 million at the last annual review and EUR 120.9 million at the cut-off date. As of the August 2024 IPD, the top five tenants represented 70.0% of the Jupiter portfolio NRI of EUR 9.5 million. Morningstar DBRS maintained its cut-off underwriting assumption of NCF at EUR 5.7 million and a cap rate of 6.7%, equating to a Morningstar DBRS Value of EUR 85.8 million, which represents a haircut of 31.6% to the most recent CBRE appraised value. The Morningstar DBRS LTV and DY are 84.3% and 7.9%, respectively.

The Sponsor can dispose of any assets securing the loans by repaying a release price of 100% of the allocated loan amount (ALA) up to the first-release price threshold, which equals 10% of the portfolio valuation. Once the first-release price threshold is met, the release price will be 105% of the ALA up to the second-release price threshold, which equals 20% of the portfolio valuation. The release price will be 110% of the ALA thereafter. Following a permitted structural change, the release price will be 115% of the ALA.

For the purpose of satisfying the applicable risk retention requirements, BofA advanced a EUR 6.2 million loan (the VRR Loan) to the Issuer on the closing date and Goldman Sachs Bank Europe SE (the VRR noteholder) subscribed to EUR 6.2 million in the notes (the VRR notes and, together with the VRR Loan, the VRR Instruments) issued on the closing date. As at the closing date, the aggregate principal amount of the VRR Instruments was EUR 12.4 million.

At issuance, the liquidity reserve stood at EUR 11.5 million. Following the erroneous release of EUR 1.8 million occurring at the August 2022 IPD, the Issuer's transaction documents were amended to allow the rebalancing of the required liquidity reserve amount. The amendment includes (1) surplus in the interest paid on the senior loans to be applied on each IPD to top up the Issuer liquidity reserve to the corrected required amount (rebalanced amount) and, (2) where a (voluntary or mandatory) prepayment on a senior loan occurs, an amount equal to the then-remaining rebalancing amount to be deducted from note principal receipts and also applied to top up the Issuer liquidity reserve.

At the November 2024 IPD, the outstanding balance of the liquidity reserve amount stood at EUR 10.3 million, providing for 15.6 months of interest shortfall coverage based on WA cap strike rate of 1.7% and approximately 10.2 months based on the 4.0% Euribor cap after the scheduled notes' maturity.

The final legal maturity of the notes falls in May 2034, providing a tail period of seven years from the loans' maturity. If necessary, Morningstar DBRS believes that this provides sufficient time to enforce the loan collateral and repay the bondholders, given the security structure and jurisdiction of the underlying loan.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant 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 Factors in Credit Ratings (13 August 2024) at https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in euros 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/436000.

The sources of data and information used for these credit ratings include CBRE valuation reports, servicer reports, and quarterly data provided by Situs Asset Management Limited and Banca Finanziaria Internazionale S.p.A. since issuance.

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 23 November 2023, when Morningstar DBRS removed the credit ratings from Under Review with Positive Implications and confirmed its credit ratings on the notes with Stable trends.

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

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

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

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

Class C Risk Sensitivity:
-- 10% decline in Morningstar DBRS NCF, expected credit rating on the Class C notes of B (high) (sf)
-- 20% decline in Morningstar DBRS NCF, expected credit rating on the Class C notes of 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 Limited for use in the United Kingdom.

Lead Analyst: Patrizia Catanese, Assistant Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 18 March 2022

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

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions (28 June 2024), https://dbrs.morningstar.com/research/435165
-- Derivative Criteria for European Structured Finance Transactions (6 September 2024), https://dbrs.morningstar.com/research/439043
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024), https://dbrs.morningstar.com/research/439913

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/439604.

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