DBRS Confirms Ratings of Taurus 2016-1 DEU Designated Activity Company

DBRS Ratings Limited (DBRS) has today confirmed the ratings on the Commercial Mortgage-Backed Floating-Rate Notes Due November 2026 issued by Taurus 2016-1 DEU Designated Activity Company, as follows:

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

All trends are Stable. The rating confirmations reflect the stable performance of the transaction since issuance.

Taurus 2016-1 DEU Designated Activity Company is a securitisation of one floating-rate senior commercial real estate loan, which was advanced by Bank of America Merrill Lynch International Limited (BAML) to fund the acquisition of 55 retail properties in Germany by certain Blackstone funds. The acquisition funding provided by BAML consisted of a EUR 333.7 million senior facility (EUR 317.0 million securitised balance) and a EUR 37.3 million mezzanine facility, implying a substantial amount of cash investment in the acquisition of the properties by Blackstone. The senior loan is 95% hedged with an interest rate cap that has a strike rate of 3.0%. The cap is provided by Bank of America, N.A.

As of February 2017, the outstanding securitised balance was EUR 295.5 million, which represents a 6.8% collateral reduction since issuance. This reduction is primarily attributed to the repayment of EUR 20.0 million following the sale of the second-largest property by market value, Am Hagen 20, in December 2016. This property was operated as a clinic by the single-tenant, Helios Kliniken and located in Hattingen, Germany.

Following the release of the clinic, the collateral consists of 54 retail properties spread across Germany. The portfolio has significant exposure to the DIY retail and hypermarket industries. Seventeen properties within the portfolio are occupied by DIY retail companies, including Baumarkt (Globus and Hela), toom Baumarkt and OBI. As of December 2016, the portfolio was 93.0% occupied, which represents a slight reduction since issuance and is in line with the DBRS underwritten vacancy rate of 6.3%. The most recent annual net operating income (NOI) is approximately EUR 37.8 million, which represents a 1% increase from the same NOI figure of EUR 37.0 million at the first quarterly payment date in May 2016 and is 29.4% higher than the DBRS underwritten net cash flow (NCF) of EUR 26.8 million at issuance, excluding the sold asset. Jones Lang LaSalle valued the property portfolio in June 2015 and estimated the portfolio market value to be EUR 494.4 million. No new valuations have been performed since issuance. Excluding the sold asset, Am Hagen 20 (EUR 27.1 million), the current portfolio value is EUR 467.3 million, which represents a 66.6% loan-to-value (LTV). Based on the DBRS stressed value, which represents a 20.8% haircut to the valuer, the DBRS LTV is 84.0%.

The transaction is supported by a liquidity facility, which is provided by Bank of America Merrill Lynch N.A. Following the release of the Am Hagen 20 property and the scheduled amortisation, the liquidity facility balance declined proportionally to EUR 16.3 million, which is 6.8% lower than the original EUR 17.3 million liquidity facility balance at issuance. The liquidity facility may be used by the issuer to fund expense shortfalls (including any amounts owing to third-party creditors and service providers that rank senior to the Notes), property protection shortfalls and interest shortfalls (including with respect to deferred interest, but excluding default interest) in connection with interest due on the Class A, Class B and Class C Notes in accordance with the relevant waterfall. The liquidity facility cannot be used to fund shortfalls due to the Class X Notes.

The final legal maturity of the Notes is in November 2026, five years beyond the fully extended maturity of the 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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “European CMBS Rating and Surveillance Methodology”.

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 legal documents have remained unchanged since the most recent rating action.

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

These 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 data and information used for these ratings include U.S. Bank Trustees Limited and CBRE Loan Services Ltd.

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

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

DBRS considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

This is the first rating action since the Initial Rating Date.

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 to the parameters used to determine the rating (the Base Case):

A decrease of 10% and 20% in the DBRS Net Cash Flow, 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:

Class A Notes 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 AA (high) (sf)

Class B Notes 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 Notes 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 BBB (sf)

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

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

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

For further information on DBRS historic 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

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.

Lead Analyst: Jorge Lopez Herguido, Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 24 February 2016

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

-- European CMBS Rating and Surveillance Methodology
-- 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