DBRS Finalises Provisional Ratings on Taurus 2015-1 IT S.r.l.

DBRS Ratings Limited (DBRS) finalised the provisional ratings on 12 February 2015 on the following classes of Commercial Mortgage-Backed Floating-Rate Notes Due February 2027 (collectively, the Notes) issued by Taurus 2015-1 IT S.r.l. (the Issuer):

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

All trends are Stable.

Taurus 2015-1 IT S.r.l. is a securitisation of three floating-rate commercial real estate loans made by Bank of America, N.A., Milan Branch to the Borrowers. The three loans — Calvino Loan, Globe Loan and Fashion District Loan — have an aggregate balance at the issuance date of EUR 301,464,000 and are hedged with borrower-level interest rate caps. The three loans are secured by 14 properties and are occupied by over 442 tenants, with the top ten tenant exposures across all properties accounting for 37.1% of the portfolio’s in-place base rental income. Approximately 38.1% of the allocated loan amount is secured by shopping centres anchored by hypermarkets, 28.2% is secured by retail centres, 25.1% is secured by office properties and 8.6% is secured by telephone exchange facilities.

The assets are all located in Italy, and the loss severity of the loans in the event of default may be greater, given enforcement timing in Italy. The time required to enforce loans in Italy typically takes much longer than in other jurisdictions, such as the United Kingdom and Germany. Traditional judicial-led loan enforcement methods in Italy can take many years, which increases loan enforcement costs and minimises loan recoveries. DBRS took the sovereign stress into consideration by adjusting the sizing hurdles used in its ratings. Additionally, in a recent commentary, DBRS noted that the Republic of Italy’s A (low) sovereign rating could come under pressure if additional political instability, weak growth prospects or high funding costs delay the stabilisation of the debt trajectory. Specific pressure of the sovereign rating on commercial real estate would result in higher yields and, ultimately, higher capitalisation rates and borrowing costs, which could translate into elevated refinance risk and pressure on the valuation of the portfolio.

While the majority of the properties are located in Northern Italy, the Fashion District Loan has significant exposure to Southern Italy, as Molfetta Fashion District is located in Molfetta. Molfetta is located in the Province of Bari, which has lower domestic product per capital and a higher unemployment rate than Italy as a whole. Molfetta Fashion District suffers from a relatively high vacancy rate of 24.9% and represents 37.8% of the allocated loan amount of the Fashion District Loan. This loan is cross-collateralised and cross-defaulted with Mantova Fashion District, which is an outlet village located in Northern Italy and is a strong performing retail centre in the region. Additionally, the loan is sponsored by Blackstone, which has a long track record of improving the performance of its real estate investments through the active management of tenant exposures. Blackstone’s ability to bring a mix of stronger tenants to the collateral properties is viewed as a positive by DBRS. Blackstone invested EUR 45 million into the acquisition of the two assets.

All loan sponsors are experienced owners and managers of commercial real estate assets in Italy and have invested significant cash equity in the acquisitions of the assets. The loans sponsors include Orion Capital Managers LLP, Cerberus Capital Management and the Blackstone Group L.P. Their knowledge and experience with both the retail sector and the Italian real estate market are viewed positively by DBRS. At closing, the sponsors invested EUR 178.0 million in the transaction.

The DBRS net cash flow (NCF) for the three loans was EUR 28,785,510, which resulted in a DBRS stressed value of EUR 353,821,558, approximately 26.6% below the appraiser’s stressed value for the portfolio as a whole.

The final legal maturity of the Notes is in February 2027, 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 by DBRS to the Notes 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 Bank of America, N.A., Milan Branch, Orion Capital Managers, Cerberus Capital Management, L.P., The Blackstone Group, L.P., Mount Street Mortgage Servicing, Elavon Financial Services Limited, CB Richard Ellis Limited, Jones Lang LaSalle and Cushman & Wakefield.

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

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 changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):

A decrease of 10% and 20% in the DBRS 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 A (sf)
-- 20% decline in DBRS NCF, expected rating of Class A to BBB (low) (sf)

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

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

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

Lead Analyst: Scott Goedken
Initial Rating Date: February 9, 2015
Rating Committee Chair: Mary Jane Potthoff

DBRS Ratings Limited
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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