DBRS Confirms Rating of Notes Issued by Debussy DTC plc

DBRS has today confirmed the rating on the following class of Commercial Real Estate Loan Backed Fixed-Rates Notes due in July 2025 issued by Debussy DTC plc:

-- Class A at BBB (low) (sf) with Stable trend

The rating confirmations reflect the overall stable performance of the transaction since issuance. The GBP 263.2 million fixed-rate loan is secured by a portfolio of 30 Toys “R” Us retail stores and one Toys “R” Us warehouse and distribution centre. There is one retail store each in Northern Ireland, Scotland and Wales, with the remaining retail stores and distribution centre located throughout England. The collateralized properties operate under individual triple-net leases, with leases expiring in February 2036 or February 2037. The leases provide for annual rental rate increases based on the Retail Price Index subject to a 1.0% floor and a 2.5% cap. In Q1 2015, rental rates across the portfolio increased by 1.6% from the previous year. The loan is interest only for its entire seven-year term, and according to the April 2015 Investor Report, the interest coverage ratio was 1.33 times (x), an increase from 1.28x at issuance and 1.31 as of the April 2014 Investor Report.

Like many traditional, big-box retailers, Toys “R” Us faces increased competition from other brick and mortar stores as well as online retailers, which offer similar products. As a result of the increase in online shopping, the need for retailers to occupy large spaces has diminished as they no longer require large traditional storefronts. These retailers have been forced to compete directly with competitors, most notably online retailers, in terms of price and delivery expectations, which often times results in downsizing. Despite these downward pressures, the performance of Toys “R” Us in the United Kingdom has remained stable, with the company opening nine new retail stores since July 2014. According to Q4 2014 reporting, T12 net sales increased by 3.6% to GBP 196.0 million for the 92 retail locations compared with Q4 2013 reporting. Additionally, EBITDA increased over the same time period by 11.7% to GBP 22.9 million. While traditional retail properties will likely remain challenging in certain markets, the collateralized properties were reappraised in April 2014 at a total combined value of GBP 357.4 million, an increase of GBP 42.4 million since issuance and 21.9 million since the previous valuation completed in April 2014.

Notes:
All figures are in sterling as noted.

The principal methodology applicable is: European CMBS Rating Methodology

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

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

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

For a more detailed discussion of the 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 Debussy DTC PLC and Situs Asset Management Limited.

DBRS does not rely upon third-party due diligence in order to conduct its analysis; however, Agreed upon Procedures (AUP) are included in the requested documentation.

-DBRS was not supplied with AUP documents. Data checks were performed and DBRS did apply additional cash flow stresses in its scenarios.

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.

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 NCF, derived by looking at comparable properties, market rents, market occupancies in addition to expense ratios, and capital expenditures, 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 Notes to BB (sf)
-- 20% decline in DBRS NCF, expected rating of Class A Notes to B (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.

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

Lead Analyst: Elizabeth Lovett, Assistant Vice President, EU CMBS
Initial Rating Date: July 27, 2015
Initial Rating Committee Chair: Erin Stafford, Managing Director, Global CMBS

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

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

A description of how DBRS analysis structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375