DBRS Confirms Ratings of Taurus CMBS UK 2014-1 Limited

DBRS Ratings Limited (DBRS) has today confirmed the ratings on all classes of Commercial Mortgage-Backed Floating-Rate Notes due May 2022 (the Notes) issued by Taurus CMBS UK 2014-1 Limited as follows:

-- Class A at A (sf)
-- Class B at BBB (sf)
-- Class C at BB (sf)

All trends are Stable.

The rating confirmations reflect the performance of the transaction since issuance in July 2014. The transaction consists of one interest-only, floating-rate loan with an initial securitised balance of GBP 211.5 million, which was secured by 132 properties located throughout the U.K. The loan represents the 95% pari passu interest of the whole loan that was granted to 13 affiliated borrowing entities, all of which are cross-defaulted and cross-collateralised. The loan had an initial three-year term (maturity in May 2017) with two one-year extension options remaining.

The predominant property type within the portfolio is retail (high street retail, shopping centres and retail warehouses). Other property types are office and industrial. The sponsor is an affiliate of Apollo Global Management, which purchased the portfolio through various loan foreclosures. The sponsor’s business plan is to fully dispose of the property portfolio before the loan maturity. As of the May 2016 remittance report, 42 properties have been sold since closing, resulting in a 39.6% property collateral reduction. The outstanding securitised balance has been reduced to GBP 127.7 million. The sold properties were subject to a 20% or 10% release premium based on their designation as tier-1 or tier-2 assets, respectively. As of May 2016, 65.1% and 34.8% of the remaining property portfolio was classified as tier-1 and tier-2, respectively.

According servicer reporting, the annual contracted rent of the portfolio is GBP 28.2 million. The projected April 2016 annualised passing net rental income is reported with GBP 13.9 million, equating to a reported interest coverage ratio (ICR) of 2.7 times (x), which is higher than the issuance ICR of 2.3x. Vacancy across the portfolio was 25.1% in April 2016, slightly higher than the 23.2% figure at the time of the last review in June 2015. Currently, there are 904 leases across the portfolio with a weighted-average lease term to expiry of 6.0 years. As of the April 2016 rent roll, 23.7% of contractual income expires on or before April 2017. DBRS applied additional stress to its NCF to account for this concentration.

The portfolio was last valued in September 2015. The reported value for the 90 properties remaining is GBP 249.8 million, a 4% like-for-like increase since closing. As a result of the release premium paid for disposed properties and the marginal value increase, the reported loan-to-value ratio is 53.8%, down from 65.0% at issuance.

The transaction does not benefit from a liquidity facility. The final maturity date of the CMBS Notes is in May 2022, three years beyond the fully extended maturity date of the loan in May 2019. To date, the transaction is performing in line with DBRS’s initial expectations. As a result of the stable performance, DBRS kept its underwriting assumptions for the 90 remaining properties unchanged and confirmed its ratings on the Notes.

Notes:
All figures are in British pounds sterling unless otherwise noted.

The principal methodology applicable is: European CMBS Surveillance.

The applicable methodologies are: European CMBS Surveillance, European CMBS Rating Methodology, Legal Criteria for European Structured Finance Transactions, Derivative Criteria for European Structured Finance Transactions and Unified Interest Rate Model for European Securitisations, which can be found on www.dbrs.com under Methodologies.
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 the Servicer, CBRE Loan Services Ltd.

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

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.

The last rating action on this transaction took place on 26 June 2015 when all the classes of this transaction were confirmed.

The lead responsibilities for this transaction have been transferred to Jorge Lopez Herguido.

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 the following ratings 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 at A (sf)
-- 20% decline in DBRS NCF, expected rating of Class A at BB (high) (sf)

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

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

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are generally resolved within a 12-month period. DBRS’s outlooks and ratings are monitored.

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.

Initial Lead Analyst: Scott Goedken, Senior Vice President, Global EU CMBS
Initial Rating Date: 18 June 2014
Initial Rating Committee Chair: Mary Jane Potthoff, Managing Director, Global CMBS

Lead Surveillance Analyst: Jorge Lopez Herguido, Financial Analyst, Global CMBS
Rating Committee Chair: Mary Jane Potthoff, Managing Director, Global CMBS

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

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

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

-- European CMBS Surveillance
-- 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

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