Morningstar DBRS Assigns Provisional Credit Ratings to Pine Finance 2025-1 DAC

DBRS Ratings Limited (Morningstar DBRS) assigned provisional credit ratings to the bonds issued by Pine Finance 2025-1 DAC (the Issuer) as follows:

-- Class A at (P) AAA (sf)
-- Class B at (P) AA (sf)
-- Class C at (P) A (sf)

All trends are Stable.

CREDIT RATING RATIONALE
Pine Finance 2025-1 DAC is a single-loan securitisation arranged by Citibank Europe Plc (Citi). The commercial real estate loan was advanced to Aldgate Tower S.à.r.l. (the Borrower), with the main purpose to refinance a commercial mortgage-backed securities (CMBS) transaction currently rated by Morningstar DBRS: Viridis (European Loan Conduit (ELOC) No. 38) DAC. The borrower is controlled by China Life Insurance Company Limited (90%) and Brookfield Property Partners L.P. (Brookfield; 10%).

The transaction represents the securitisation of a loan totaling GBP 115.7 million and is backed by an office building in Aldgate, London, at the fringe of the City of London. Aldgate Tower is a modern Grade A office tower that was completed in November 2014 and sold to the current joint venture in 2016. Savills (UK) Limited (Savills) appraised the asset at a market value (MV) of GBP 251.0 million as of 8 November 2024. Additionally, Savills valued the collateral on the special assumption of a share sale (MV-SPV) transaction at GBP 264.0 million. The loan-to-value ratio (LTV) based on the latter is 43.8%.

The loan bears interest at a floating rate equal to three-month Sonia (subject to zero floor), plus a loan margin equivalent to the percentage rate per annum (p.a.), which is the weighted-average (WA) margin applicable to the notes, excluding the Class A liquidity reserve portion of the Class A notes. The loan margin is expected to be 2.23% initially and will be dynamic based on the determination of the WA margin applicable to the notes as explained above. The loan will be fully hedged by a prepaid cap agreement with Standard Chartered Bank for the five-year loan term at a strike rate of 3.5% p.a.

The loan maturity date is 20 April 2030, the first interest payment date falling after the fifth anniversary of the utilisation date. After the expected note maturity date on 22 April 2030, or at the occurrence of a loan event of default, the Sonia component of the rate of interest payable on the notes will be capped at 5.0% p.a., subject to a floor of zero.

As of the cut-off date, 21 October 2024, the property generated GBP 15.9 million gross rental income and GBP 14.6 million net operating income, which reflects a 6.0% gross initial yield and a 5.5% net initial yield, respectively, and a day-one debt yield (DY) of 12.6%. Morningstar DBRS' long-term stable net cash flow (NCF) assumption and the Morningstar DBRS Value for the property are GBP 11.6 million and GBP 203.1 million, respectively, with the latter representing a haircut of 23.1% to Savills' appraised MV-SPV.

The loan has an LTV cash trap covenant ratio set at 53.8% prior to a permitted change of control (CoC) date (being the first date on which Brookfield does not hold, directly or indirectly, at least 10% of the issued share capital in the parent), and at 48.8% on and from a permitted CoC. Prior to a CoC, the DY cash trap covenant ratio is set at 8.5% for the first year, 9.5% for the second year and 10.0% from the third year onwards, while it is set at 10.0% on and from a permitted CoC. There are no LTV and DY financial covenants prior to a permitted CoC. Following a CoC event, the LTV and DY financial covenants are set at 53.8% and 8.5%, respectively.

The final legal maturity of the notes is 22 April 2035, five years after the maturity date of the loan. Morningstar DBRS believes this provides sufficient time to enforce on the loan collateral if needed and repay the bondholders, given the security structure and jurisdiction of the underlying loan.

On the closing date, the Issuer liquidity reserve will be funded at GBP 7.2 million through a portion of the proceeds of the issuance of the Class A notes (and a corresponding portion of the proceeds of the Issuer loan). Funds in the Issuer liquidity reserve account will be available to fund, inter alia, payments of interest in respect of the notes and certain payments due under the Issuer loan. Morningstar DBRS estimates the liquidity facility support is equivalent to approximately 13 months of coverage based on the hedging terms mentioned above or approximately 10 months of coverage based on the 5.0% Sonia cap after scheduled maturity. The liquidity reserve will be reduced based on note amortisation, if any, and in the event of a substantial value decline of the property.

To comply with the applicable regulatory requirements, Citibank, N.A. London Branch advanced a GBP 6.1 million Issuer loan representing 5% of the total securitised balance to the Issuer. In addition, the borrower has agreed to pay the upfront and ongoing costs, fees, and expenses of the Issuer in connection with the transaction pursuant to the ongoing Issuer costs letter.

Morningstar DBRS' credit ratings on the Class A, Class B, and Class C notes to be issued by the Issuer address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the initial principal amounts and the interest amounts.

Morningstar DBRS' credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, Sonia Excess Amounts, Exit Payment Amounts, Pro Rata Default Interest Amounts, and Pro Rata Extension Step-Up Amounts payable to the noteholders.

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) 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 the European CMBS Rating and Surveillance Methodology (4 March 2025) https://dbrs.morningstar.com/research/449278.

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 principal methodology.

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 data tape dated 21 October 2024 provided by Citi, a valuation report dated 8 November 2024, prepared by Savills, and technical and environmental due diligence report dated 2 February 2024 prepared by Watts limited.

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

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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of the final credit ratings on the above-mentioned securities are subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalise the credit ratings.

These credit ratings concern an expected-to-be-issued new financial instrument. These are the first Morningstar DBRS credit ratings on this financial instrument.

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 (P) AAA (sf)
--20% decline in Morningstar DBRS NCF, expected credit rating on the Class A notes of (P) AA (high) (sf)

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

Class C Risk Sensitivity:
--10% decline in Morningstar DBRS NCF, expected credit rating on the Class C notes of (P) A (low) (sf)
--20% decline in Morningstar DBRS NCF, expected credit rating on the Class C notes of (P) BBB (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: Christian Aufsatz, Managing Director
Initial Rating Date: 15 April 2025

DBRS Ratings Limited
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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 (4 March 2025),
https://dbrs.morningstar.com/research/449278.
-- 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.
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024),
https://dbrs.morningstar.com/research/439571
-- 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.