DBRS Confirms All Ratings of DECO 2015-Charlemagne S.A.

DBRS Ratings Limited (DBRS) has today confirmed all ratings of the Commercial Real Estate Loan Backed Floating-Rate Notes Due April 2025 (the Notes) issued by DECO 2015-Charlemagne S.A. as follows:

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

All trends are Stable.

The rating confirmation reflects the overall steady performance of the whole transaction based on the April 2016 interest payment date (IPD) investor report. Among the three securitised loans, the Windmill loan has registered a decrease in gross rental income (GRI) due to property disposal and tenant departure while the other two loans, Mstar and Pegasus, have reported increases in rental incomes. DBRS has also noted that the approach of calculating GRIs of the loans has slightly changed after issuance.

The GRI decline of the Windmill loan can be attributed to the sale of Karperstraat property and the departure of CGI Nederland B.V., the only tenant of the Rijswijk property. Per the January 2016 investor report, the Karperstraat property has been sold for approximately EUR 22.3 million, of which EUR 17.5 million was used to pay down the Karperstraat Borrower debt while the remaining EUR 4.8 million was used to repay the debt of the remaining borrowers on a pro rata basis. At issuance, the building was fully let to a single tenant who was paying EUR 2.4 million rent per year. DBRS has consequently removed this income from its net cash flow (NCF). CGI Nederland vacated its 8,479 sqm premises in Rijswijk on 31 December 2015 thus causing a GRI loss of EUR 1.8 million. However, another tenant who has signed a sub-lease with CGI is still paying EUR 158,000 per annum rent in the building. DBRS had already considered the Rijswijk building vacant at issuance.

Mstar has seen a pick-up in leasing activities since issuance. The servicer reported that GRI has increased to EUR 14.7 million in April 2016, which is a 14.4% increase since issuance. However, DBRS has not received sufficient information, such as periodic reports and rent roll, to independently verify the impact of such rental improvements and hence kept DBRS NCF unchanged compared with the initial analysis.

The third and smallest loan of the transaction – Pegasus – has reported an approximately EUR 500,000 rental income rise until April 2016. Most of this increase is from the new rental income (including rent-free) signed with a major industrial tenant. As the increase of GRI is only marginal and no material tenancy change has been reported, DBRS considers its initial NCF assumptions still valid.

All three loans are amortising loans and with the partial prepayment of the Windmill loan following the property sale, the balances of the loans have been reduced, which in turn has decreased debt servicing requirements. This is reflected in the increases in the debt service cover ratio (DSCR) of Mstar and Pegasus loans. The DSCR of the Windmill loan has been adjusted down immediately after issuance to comply with the Facility Agreement and has been increasing since the adjustment.

The rating assigned to Classes B and C differ from the higher rating implied by the quantitative model. DBRS considers this difference to be a material deviation and, in this case, DBRS deems the credit quality of the subject notes to be consistent with the ratings assigned due to the lack of transaction seasoning and performance history.

DBRS continues to monitor this transaction on a quarterly basis.

Notes:

All figures are in euros 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.

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

A review of the transaction legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to the DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” found at http://www.dbrs.com/industries/bucket/id/10036/name/commentaries.

The sources of information used for this rating include Situs Asset Management Ltd. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

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 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, is 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 and 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 Note Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class A at AAA (sf)
-- 20% decline in DBRS NCF, expected rating of Class A at AAA (sf)

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

Class C Note Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class C at A (low) (sf)
-- 20% decline in DBRS NCF, expected rating of Class C at BB (high) (sf)

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

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

For further information on DBRS historical default rates published by the European Securities and Markets Authority (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: 24 July 2015
Initial Rating Committee Chair: Erin Stafford, Managing Director

Lead Surveillance Analyst: Rick Shi, Senior Financial Analyst
Rating Committee Chair: Mary Jane Potthoff, Managing Director

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY
United Kingdom

The rating methodologies used in the analysis of this transaction can be found at http://www.dbrs.com/about/methodologies:
-- European CMBS Rating Methodology
-- European CMBS Surveillance
-- Legal 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.