DBRS Finalises Provisional Ratings on DECO 2015-Charlemagne S.A.

DBRS Ratings Limited (DBRS) has today finalised the provisional ratings on the following classes of Commercial Mortgage-Backed Floating-Rate Notes due April 2025 (collectively, the Notes) to be issued by DECO 2015-Charlemagne S.A. (the Issuer):

-- Class A Notes rated AAA (sf)
-- Class B Notes rated AA (low) (sf)
-- Class C Notes rated A (low) (sf)
-- Class D Notes rated BBB (low) (sf)
-- Class E Notes rated BB (sf)

All trends are Stable.

DECO 2015-Charlemagne S.A. is a securitisation of three floating-rate commercial real estate loans made by Deutsche Bank AG, London Branch. The three loans, Windmill Loan, MStar Loan and Pegasus Loan, have a loan balance of €316.1 million and are hedged with borrower-level interest rate caps and swaps.

The collateral for the three loans are secured by 37 properties located in the Netherlands, Germany and Belgium. The loans contain a diverse composition of property types including office (66.6% by market value), industrial (26.4%) and retail (7.0%) properties. The €177.1 million Windmill Loan, comprising 56.0% of the transaction, is secured by ten properties, nine of which, representing 82.8% of the portfolio, were previously securitized in the Deco 2014-Tulip Limited transaction in October 2014. These properties have experienced a slight performance decline since the previous securitisation as the base rent for these properties has declined 2.2%. This is primarily derived from the bankruptcy and subsequent downsizing of one tenant, Mexx Global B.V., at the Johan Huizingalaan 400 property in Amsterdam. However, since the previous securitisation, the sponsor has successfully executed 17 new and renewal leases totalling €3.6 million, which represents 14.5% of the DBRS UW base rent. The €83.7 million MStar Loan, comprising 26.5% of the transaction, is secured by 19 light industrial properties, located in Germany and the Netherlands. The €55.3 million Pegasus Loan comprising 17.45% of the transaction is secured by eight office buildings within one business park in Diegem, Belgium.

The loans are sponsored by PPF Real Estate Holding B.V., MStar Europe L.P. and Ares Management L.P., all of which are experienced owners and operators of commercial real estate in Europe. Additionally, MStar Europe L.P. and Ares Management L.P., invested €68.1 million of cash equity in the acquisition of the two portfolios of properties. The sponsors have detailed business plans for each property, which generally includes investing capital expenditures to improve occupancy and reposition the properties within their respective markets. Two of the loans, Windmill and MStar, are structured with an ongoing cash trap during the loan term to fund the capital expenditure plans detailed in the business plans. The DBRS net cash flow (NCF) does not give credit to the upside potential associated with rental rate increases and occupancy stabilization if the sponsors execute their business plan. While the sponsors generally plan to hold the properties during the five-year loan term, if any of the properties are sold, the proceeds from the sale will be used to pay down the relevant loan (in accordance with its terms), subject to the release prices ranging from 105% to 127.5%.

The aggregate DBRS NCF for the three loans was €31,161,998. DBRS applied a blended capitalization rate of 7.9% to the aggregate NCF to arrive at a DBRS stressed value of €395,339,304, which represents a 19.8% discount to the market value provided by the valuations. The loans represent relatively low leverage financing. The resulting DBRS loan-to-value ratio is 79.9%.

The final legal maturity of the Notes is in April 2025, five years beyond the maturity of the latest maturing loan. 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.

Deutsche Bank AG, London Branch will retain an ongoing material economic interest of not less than 5% of the loan to maintain compliance with Article 405(1) of the European Union Capital Requirements Regulation and also with Article 51 of the Commission Delegated Regulation (EU).

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

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 DECO 2015-Charlemagne S.A., Deutsche Bank AG, London Branch, CBRE Valuation Advisory B.V., DTZ Zadelhoff Tie Leung GmbH and Knight Frank.

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.

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

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

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

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

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

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: Scott Goedken, Senior Vice President, EU CMBS
Initial Rating Date: July 21, 2015
Initial Rating Committee Chair: Erin Stafford, Managing Director, Global CMBS

DBRS Ratings Limited
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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