Morningstar DBRS Confirms Credit Ratings on Taurus 2021-1 UK DAC

DBRS Ratings Limited (Morningstar DBRS) confirmed its credit ratings on the bonds issued by Taurus 2021-1 UK DAC (the Issuer) as follows:

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

The trend on all credit ratings remains Stable.

CREDIT RATING RATIONALE
The credit rating confirmations reflect the collateral's stable performance in terms of rental income since the last annual review.

The transaction is the securitisation of a GBP 340.1 million senior commercial real estate loan secured by 45 light-industrial and logistics assets located across the United Kingdom with a large concentration in London and the South East. The transaction is arranged by BofA Securities and jointly managed by Barclays Bank PLC for the benefit of funds managed by Blackstone Group Inc. (Blackstone). At issuance, the Issuer purchased the senior loan from the loan seller, Bank of America Europe DAC, using the proceeds from the note issuance and the issuer loan provided by the loan seller. The issuer loan was sized at 5% of the senior loan amount in order to satisfy risk retention requirements. The senior loan margin directly mirrors the weighted-average coupon on the notes; therefore, there is no excess spread in the transaction. However, the senior loan margin is capped at 2.29%.

The senior loan has refinanced Blackstone's acquisitions since the first quarter of 2020. In particular, it refinanced the original portfolio of 38 assets that were acquired before October 2020 (the United IV subportfolio) and seven assets that were acquired between November 2020 and December 2020 (the add-on portfolio). The entire 45-asset pool is known as the United V portfolio and is integrated into Blackstone's logistics platform Mileway.

In conjunction with the senior loan, AustralianSuper Pty Ltd advanced a GBP 85.0 million mezzanine facility, which was subordinated to the securitised senior facility. The mezzanine facility was redeemed in full during the first quarter of 2022.

In September 2021, part of one of the properties, Sheffield Business Park, was sold, and the disposal proceeds were applied in partial prepayment of the senior and mezzanine loans. GBP 2.5 million was then applied pro rata against the notes (95%) and against the issuer loan (5%) on the February 2022 interest payment date. Since then, no further sale has occurred. The senior loan balance stands at GBP 337,656,000.

Income metrics for the portfolio showed a further slight improvement over the last 12 months. Adjusted net rental income increased to GBP 31.8 million as of the November 2024 interest payment date (IPD) from GBP 31.1 million as of the November 2023 IPD (an increase of 2.3%). As a result of the increase in income, debt yield (DY) increased to 9.4% as of the November 2024 IPD, up from 9.2% as of the November 2023 IPD and 7.44% at issuance.

The most recent valuation, dated 31 October 2023, was conducted by Jones Lang LaSalle Limited (JLL) and concluded to a value of GBP 602.2 million for the sum of the assets in the portfolio. This figure represents a 12.1% increase over the assets' previous market value (GBP 537.2 million) as of 28 October 2022 indicated by Knight Frank LLP (Knight Frank). JLL concluded to a portfolio value of GBP 617.2 million, inclusive of a 2.5% portfolio premium. This represents a loan-to-value (LTV) ratio of 54.7% on the current loan balance of GBP 337.7 million.

Morningstar DBRS' net cash flow (NCF) and capitalisation rate assumptions remained unchanged at GBP 27.8 million and 6.5%, respectively. Hence, the Morningstar DBRS value is GBP 427.1 million, equivalent to a 29.1% haircut on the most recent market value.

The November 2024 IPD vacancy rate stands at 9.7%, slightly lower than 11.2% in November 2023. This is still in line with Morningstar DBRS' vacancy assumptions.

Similar to other Blackstone loans, there are no financial default covenants applicable prior to a permitted change of control. As of November 2024, the senior loan was fully compliant with its cash trap covenants, which are set at 71.6% for LTV and 6.1% for DY, and Morningstar DBRS does not foresee any breach in the upcoming quarters.

The senior loan is fully hedged with a cap agreement, which has a cap strike rate of 1.5%. For each note interest period occurring on or after the expected note maturity date, the Sterling Overnight Index Average (Sonia) component of the rate of interest payable on the notes will be capped at 4% per annum, subject to a floor of zero.

To cover potential interest payment shortfalls, Bank of America, N.A., London Branch provided the Issuer with a liquidity facility of GBP 11.4 million at issuance. The liquidity facility covers the Class A, Class B, and Class C notes as well as the corresponding portion of the issuer loan. The current liquidity facility balance stands at GBP 11.3 million. The coverage provided by the liquidity facility is for 20.5 months based on a 1.5% cap strike rate and for 11 months based on the 4% Sonia cap. The coverage provided by the liquidity facility is deemed to be commensurate with the credit ratings of the respective covered notes.

The two-year senior loan had its initial maturity on 15 May 2023 and three-one year extension options to 15 May 2026. The second extension option was exercised, extending expected loan maturity to 15 May 2025. The final legal maturity of the notes is in May 2031, five years after the fully extended loan maturity date. Morningstar DBRS believes that this provides sufficient time to eventually enforce the senior loan collateral and repay the noteholders, given the security structure and the jurisdiction of the underlying loan and properties.

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 at https://dbrs.morningstar.com/research/437781.

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 Credit 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 quarterly servicer reports provided by CBRE Servicing Limited, valuation reports prepared by CBRE Limited, Cushman & Wakefield (UK) LLP, Knight Frank, and most recently JLL as well as cash management reports provided by U.S. Bank Global Corporate Trust Limited.

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 1 March 2024, when Morningstar DBRS confirmed the Class A notes at AAA (sf) and upgraded the Class B, C, D, and E notes to AA (high) (sf) from AA (low) (sf), A (high) (sf) from A (low) (sf), BBB (sf) from BBB (low) (sf), and BB (high) (sf) from BB (low) (sf), respectively.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on http://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 rating (the base case):

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

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

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

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

Class E Risk Sensitivity:
-- 10% decline in Morningstar DBRS NCF, expected credit rating of Class E notes at BB (high) (sf)
-- 20% decline in Morningstar DBRS NCF, expected credit rating of Class E notes at BB (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: David Lautier, Senior Vice President
Initial Rating Date: 10 February 2021

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

-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024), https://dbrs.morningstar.com/research/439913
-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024), https://dbrs.morningstar.com/research/443196
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024), https://dbrs.morningstar.com/research/437781

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.