DBRS Assigns Provisional Ratings to Antares 2015-1 Plc

DBRS Ratings Limited (DBRS) has today assigned provisional ratings to the following classes of Commercial Mortgage-Backed Floating-Rate Notes Due December 2022 (collectively, the Notes) issued by Antares 2015-1 Plc (the Issuer):

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

All trends are Stable.

Antares 2015-1 Plc is a securitisation of one floating-rate commercial real estate loan made by the Royal Bank of Scotland plc. The loan served to refinance existing debt on 20 office, retail and mixed-use properties located in the United Kingdom by Kennedy Wilson Europe Real Estate plc (Kennedy Wilson). The properties were acquired by the sponsor in July 2014 for a total purchase price of £296.0 million. The portfolio was previously securitised through the Fordgate Commercial Securitisation No. 1 plc (FOX1), which matured in December 2013. Reportedly, the previous sponsor, Fordgate Group, was unwilling to invest necessary capital expenditures during the loan term and as a result was unable to retain tenants. The portfolio went into receivership until it was purchased by Kennedy Wilson. The total debt amount of the portfolio in the FOX1 transaction in 2006 was £264.3 million compared with the new, initial financing of £184.0 million. The original FOX1 transaction included all of the 18 collateral properties, in addition to three other properties that have been since liquidated and are not included in the subject transaction.

The sponsor’s business plan is to liquidate the majority of the properties during the loan term, and the properties have been separated into three tiers generally based on the allocated loan amount and sponsor’s business plan. Tier 1 assets represent the six largest properties in the portfolio and have a 110% release premium. Tier 2 assets include ten properties and have a 105% release premium. Tier 3 assets represent the smallest four properties and have a 100% release premium. As of the issuance date, the loan had an aggregate balance of £180.1 million. Two properties have been liquidated to date, which accounts for the paydown of the loan.

Three of the largest properties are concentrated in the Hill of Rubislaw Office Park in Aberdeen, Scotland. These assets represent 44.2% of the appraiser’s concluded value and 42.8% of the DBRS underwritten rent. Additionally, these properties are primarily leased to oil companies, and the Aberdeen economy is extremely dependent on the oil industry. Of the total rent derived from the Aberdeen assets, 28.6% is from a recently executed 15-year lease with Conoco Phillips UK Ltd. (Conoco Phillips), a subsidiary of investment-grade-rated ConocoPhillips Holdings Limited. This lease extends nearly ten years beyond loan maturity. Aberdeen has historically been the oil capital of Europe, given its proximity to the North Sea. Several of the oil companies have offices in Aberdeen that serve as their EMEA headquarters and run all operations for Europe, the Middle East and Africa. Aberdeen’s strategic location helps to further mitigate the risk associated with reliance on a single industry. The loan represents relatively low leverage financing. Based on the DBRS Stressed Value, the DBRS loan-to-value is 76.0%. Additionally, the loan’s DBRS Refinance Debt Service Coverage Ratio is 1.27 times and the DBRS Exit Debt Yield is 9.9%, both stressed significantly from the loan’s current interest rate and cash flow, which indicates a relatively high probability of refinance at loan maturity.

The loan sponsor, Kennedy Wilson, is an experienced owner and manager of commercial real estate in Europe and has £112.0 million of cash equity remaining in the transaction. The sponsor is a wholly owned entity of Kennedy Wilson Holdings, which has a portfolio totalling $1.0 billion of assets located in the United States, Europe and Japan.

The DBRS net cash flow (NCF) was £17,905,979, which resulted in a DBRS stressed value of £236,864,307, approximately 24.2% below the appraiser’s stressed value for the portfolio as a whole.

The final legal maturity of the Notes is in December 2022, three 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 sterling pounds 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 and can be found 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 the Royal Bank of Scotland plc, Mount Street Mortgage Servicing, Elavon Financial Services Limited and CB Richard Ellis Limited.

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

Class B Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class B to BB (low) (sf)
-- 20% decline in DBRS NCF, expected rating of Class B 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: March 18, 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