DBRS Finalises Provisional Ratings on Deco 2014-Tulip Limited

On October 14, 2014, DBRS, Inc. (DBRS) finalised provisional ratings on the following classes of Commercial Mortgage-Backed Floating-Rate Notes Due July 2024 (collectively, the Notes) issued by Deco 2014-Tulip Limited:

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

All trends are Stable.

Deco 2014-Tulip Limited is a securitisation of two floating-rate loans made by Deutsche Bank AG, London Branch. The two loans, Windmolen and Orange, have an aggregate securitized balance of EUR 250,042,318, and are hedged with borrower level swaps and interest rate caps. The borrowers under the Windmolen loan are nine special-purpose vehicles (SPVs) controlled by the loan sponsor, PPF Real Estate Holding B.V. The borrower under the Orange loan is MKS5 CRE Holdings B.V., an SPV controlled by Mount Kellett Capital Management LP and Sectie5 Investments NV, the loan sponsors.

The purpose of the Windmolen loan is to provide financing for the acquisition of eight office properties and one retail property which are located throughout the Netherlands. Between them, the properties contain 142,672 square metres of net rentable area (NRA) of which 81.1% is physically occupied. There are 76 tenants occupying the portfolio and these tenants have a weighted-average (WA) lease term-to-first break option of 5.7 years.

The purpose of the Orange loan is to provide financing for the acquisition of the 11 retail properties which are also located through the Netherlands. The properties contain 95,376 square metres of NRA of which 92.8% is physically occupied. There are 232 tenants occupying the portfolio and these tenants have a WA lease term-to-first break option of 3.4 years.

The final legal maturity of the Notes is in July 2024, five years beyond the maturity of the loans. If necessary this is believed to be sufficient time, given the security structure and jurisdiction of the underlying loans, to enforce on the loan collateral and repay bondholders.

The ratings assigned to the Notes by DBRS are based exclusively on the credit provided by the transaction structure and underlying trust assets. All classes will be subject to ongoing surveillance, which could result in upgrades or downgrades by DBRS after the date of issuance.

Notes:
All figures are in Euros unless otherwise noted.

The applicable methodologies are European CMBS Rating Methodology, Legal Criteria for European Structured Finance Transactions, Operational Risk Assessment for European Structured Finance Servicers, Derivative Criteria for European Structured Finance Transactions and Unified Interest Rate Model for European Securitisations, which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of information used for this rating include Deutsche Bank AG, London Branch, CBRE Valuation Advisory B.V., and Jones Lang Lasalle.

DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

This rating was disclosed to the arranger, Deutsche Bank AG, London Branch.

This rating concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):

A decrease of 10% and 20% in the DBRS Net Cash Flow (NCF), derived by looking at comparable properties, market rents, market occupancies in addition to expenses ratios, capital expenditures and re-tenanting costs, would lead to a downgrade in the transaction, as noted below for each class respectively:

Class A Notes Risk Sensitivity:
• 10% decline in DBRS NCF, expected rating of AA (sf)
• 20% decline in DBRS NCF, expected rating of A (high) (sf)

Class B Notes Risk Sensitivity:
• 10% decline in DBRS NCF, expected rating of A (high) (sf)
• 20% decline in DBRS NCF, expected rating of A (low) (sf)

Class C Notes Risk Sensitivity:
• 10% decline in DBRS NCF, expected rating of A (low) (sf)
• 20% decline in DBRS NCF, expected rating of BBB (sf) Class D Notes Risk Sensitivity:
• 10% decline in DBRS NCF, expected rating of BBB (sf)
• 20% decline in DBRS NCF, expected rating of BB (high) (sf)

Class E Notes Risk Sensitivity:
• 10% decline in DBRS NCF, expected rating of BB (high) (sf)
• 20% decline in DBRS NCF, expected rating of BB (low) (sf)

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS’s outlooks and ratings are under regular surveillance.

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

This credit rating has been issued outside the European Union (EU) and is endorsed by DBRS Ratings Limited. It may be used for regulatory purposes by financial institutions in the EU.

Initial Lead Analyst: Daniel Kastilahn
Initial Rating Date: September 25, 2014
Initial Rating Committee Chair: Mary Jane Potthoff

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The rating methodologies and criteria used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

European CMBS Rating Methodology
Legal Criteria for European Structured Finance Transactions
Derivative Criteria for European Structured Finance Transactions
Unified Interest Rate Model for European Securitisations

DBRS has published a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com