DBRS Assigns Ratings to Tibet CMBS S.R.L.

DBRS Ratings Limited (DBRS) has today assigned ratings to the following classes of Commercial Mortgage-Backed Floating-Rate Notes Due December 2026 (collectively, the Notes) to be issued by Tibet CMBS S.R.L. (the Issuer):

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

All trends are Stable.

Tibet CMBS S.R.L. is a securitisation of a single floating-rate loan made by Banca IMI S.p.A. to the borrower. The loan has a securitised balance of EUR 203,000,000, and is hedged with a borrower-level interest rate cap. The borrower is Montenapoleone Retail S.R.L. The sponsor for the loan is Statuto Lux Holding RE S.R.L., an entity ultimately owned and managed by Mr. Giuseppe Statuto, a high net worth Italian national.

The purpose of the loan is to provide refinancing of existing indebtedness, to partially pay closing costs for the loan and for general corporate purposes. The collateral securing this loan consists of a single retail property located on Via Monte Napoleone in central Milan, Italy. The property contains 5,738 square metres of leasable area situated across a lower ground level and five floors above ground. As of 1 July 2014, the property was 100% leased. Three luxury retailers have taken occupancy and are open for business at the property. A fourth luxury retailer is currently fitting out their space and will take occupancy later this year. An adjacent luxury hotel has leased the top two floors of the building and is converting these spaces into luxury suites.

DBRS’s net underwritten cash flow in Year 1 of the loan is EUR 12,875,711, which is 8.5% higher than the Issuer’s Year 1 underwritten cash flow of EUR 11,786,458, but 1.95% lower than the Issuer’s average cash flow over the term of the loan.

Utilising the cash flow assumptions presented above, DBRS estimated a stabilised net cash flow for the property. Using this cash flow, DBRS then calculated a stressed interest coverage ratio (ICR) for the loan. The DBRS Stressed ICR for the loan is 1.35 times. This ratio is above the ICR event of default covenants (actual and prospective ICR) of 1.10 times in Year 1 of the loan. DBRS does not anticipate the loan breaching its financial covenants during the term of the loan, as DBRS’s Stressed ICR assumes a loan interest rate higher than the actual rate of interest on the loan. DBRS believes that the cash flows from the property are sufficient for the loan to remain in compliance with the covenanted event of default ICR ratios during the term of the loan.

DTZ valued the property on 1 July 2014 and at that time estimated the market value of the property at EUR 314,700,000. To arrive at this valuation, DTZ applied a 5.5% discount rate to property cash flow. DBRS applied a capitalisation rate of 5.75% to its stabilised cash flow. The result is a DBRS Stressed Value of EUR 223,925,410. The DBRS Value represents a 28.8% haircut to DTZ’s July 2014 valuation. Utilising this value, DBRS calculated a stressed loan-to-value of 90.7% at issuance for the loan. DBRS’s Exit Debt Yield for the loan is 6.8%. DBRS believes that the loan, given the quality, condition and location of the collateral properties, is refinanceable at this yield.

The final legal maturity of the Notes is in December 2024, seven 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 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 Cairn Capital Limited, Banca IMI, S.p.A., DTZ, Credito Fondiario S.p.A., Tibet CMBS SRC, Montenapoleone Retail S.R.L, and Statuto Lux Holding RE S.R.L.

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 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 Class A to AA (sf)
-- 20% decline in DBRS NCF, expected rating of Class A to A (high) (sf)

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

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

Class D Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class D to B (low) (sf)
-- 20% decline in DBRS NCF, expected rating of Class D to CCC (sf)

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

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Scott Goedken
Initial Rating Date: 23 January 2015
Initial Rating Committee Chair: Erin Stafford

DBRS Ratings Limited
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United Kingdom

Registered in England and Wales: No. 7139960

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