DBRS Confirms Ratings of Gallerie 2013 S.r.l.

DBRS Ratings Limited (DBRS) has today confirmed the ratings of the following classes of Commercial Mortgage-Backed Floating-Rate Notes due November 2025 (collectively, the Notes) issued by Gallerie 2013 S.r.l:

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

All trends are Stable.

Gallerie 2013 S.r.l. is a securitization vehicle of a single floating-rate loan made by Goldman Sachs International Bank to an Italian real estate fund (Krypton), managed by Morgan Stanley SGR S.p.A. The original balance of the loan, which is hedged with a borrower-level interest rate cap, was €363,000,000 and as of the November 2014 reporting period, the loan balance has amortised down to €359,370,000. The purpose of the loan was to provide acquisition financing to the sponsor for the acquisition of the real estate portfolio.

The collateral portfolio consists of 13 shopping centres and two retail parks comprising 624 shops in approximately 200,000 square metres of leasable area. The properties are located throughout Italy. The distribution of the assets, based on the original base rents, is 27% in Northern Italy, 22% in Central Italy and 51% in Southern Italy. Morgan Stanley SGR S.p.A., as Fund Manager, has appointed GCI as Property Manager to provide certain property management services. As of the November 2014 Quarterly Investor Report, the portfolio reported an average physical vacancy rate of 5.3%, compared to 6.0% at issuance. As of the same reporting period, the reported portfolio income was approximately €47.6MM, which is generally in line with the DBRS UW income for the portfolio at Issuance.

The Unitholders of the Krypton fund are MSREF VII Harmony B.V. and Gallerie Commerciali Italia S.p.A. (GCI), which is a wholly owned subsidiary of Groupe Auchan SA.

The final legal maturity of the Notes is in November 2025, seven years beyond the maturity of the loans. This is believed to be sufficient time to enforce and repay bondholders, given the unique security structure and the property’s jurisdiction.

Notes:
The principal methodology applicable is: European CMBS Rating Methodology

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

This can be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

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 Goldman Sachs International, Gallerie 2013 S.r.l., Savills and the CREFC EIRP and all relevant documentation.

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.

The last rating action on this transaction took place on December 6, 2013, when the Provisional Ratings were Finalised.

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 A (sf)
• 20% decline in DBRS NCF, expected rating of BBB (low) (sf)

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

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

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: Scott Goedken
Initial Rating Date: December 6, 2013
Initial Rating Committee Chair: Mary Jane Potthoff

DBRS, Inc.
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Chicago, IL 60606
USA

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
Operational Risk Assessment for European Structured Finance Servicers
Derivatives Criteria for European Structured Finance Transactions
Unified Interest Rate Model for European Securitisations

DBRS will publish 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.

For additional information on this rating, please see Linking Document: European CMBS under Related Research to the right or by contacting us at info@dbrs.com.