DBRS Downgrades Three Classes of Taurus 2015-1 IT, Maintains Negative Trend

DBRS Ratings Limited (DBRS) has today downgraded the ratings of the Class B, Class C and Class D Notes of the Commercial Mortgage-Backed Floating-Rate Notes Due February 2027 issued by Taurus 2015-1 IT S.r.l. as follows:

-- Class B to BBB (high) (sf) from A (sf)
-- Class C to BB (sf) from BBB (low) (sf)
-- Class D to B (sf) from BB (low) (sf)

The Under Review with Negative Implications designation on the Class B, Class C and Class D Notes was removed as a result of the downgrade. The trends of the Class B, Class C and Class D Notes are Negative.

Additionally, DBRS has confirmed the rating of the Class A Notes as follows:

-- Class A at A (high) (sf)

The trend of the Class A Notes has been changed from Negative to Stable.

This press release should be read in conjunction with the press release published on 17 February 2017 when DBRS placed three classes of Taurus 2015-1 IT S.r.l. Under Review with Negative Implications as a result of the potential significant decline in net operating income for the Calvino Loan.

The rating downgrades to Classes B, C and D reflect the upcoming aniticipted loss of rental income loss in relation to the Calvino Loan. Two of the largest tenants occupying the properties securing the loan, Prysmian S.p.A. (Milano) and Wolters Kluwer Italia S.r.l (Assago), will be vacating their units in April 2017 and July 2017, respectively. Together, these tenants comprise EUR 3.8 million of annual contracted rent, which represents 36.6% of the current in-place rent. According to the servicer, the sponsor is marketing the space but has not re-let it. Prysmian S.p.A communicated its intention to leave the property in Q4 2015 and the property has been marketed for more than 12 months.

As a result of the upcoming lease rollover, the DBRS stabilised net cash flow for the Calvino Loan declined to EUR 5.3 million. This cash flow incorporates an increased stabilised vacancy assumption of 25%. Colliers valued the portfolio at EUR 117.3 million in Q3 2016, which is in line with the issuance value, excluding disposed assets. As a result of the updated DBRS UW net cash flow, the most recent DBRS portfolio value is now EUR 64.4 million, which represents a 45.3% haircut to the latest valuation.

While the loan does not have a scheduled amortisation, it is structured with a schedule of a declining targeted loan principal amount based on the sponsor’s business plan to liquidate the property portfolio during the term of the loan. As of the most recent investor report from November 2016, the current whole loan balance was EUR 75.5 million, which satisfies the loan target of EUR 79.0 million by the end of the period ending in 7 May 2017, according to the loan documents. During the upcoming periods ending in August 2017 and November 2017, the loan target amount declines to EUR 64.2 and EUR 34.0 million respectively, representing a 45.0% reduction to the current whole loan balance. If the sponsor does not meet the target loan amounts, a cash trap commences.

Per the loan documents, every quarter the Calvino Loan is subject to loan-to-value (LTV) and interest coverage ratio (ICR) covenant tests, requiring that a maximum of 75.0% LTV and a minimum of 1.75x ICR Cash Trap be maintained. The ICR is calculated based on the lesser of the previous 12 months’ net rental income and the projected 12 months’ net rental income. Also considering current rent-free periods of other tenants, irrecoverable expense and capex requirements for vacant units, DBRS foresees that a breach of the ICR trigger may occur if the soon-to-be vacant space is not effectively let or the income loss otherwise at least partially mitigated. The servicer does not foresee that the borrower will be unable to pay interest on the loan when due. The loan has an Event of Default trigger of a minimum of 1.50x ICR.

The performance of the Globe and Fashion District loans were recently assessed during the surveillance review on 17 February 2017. No changes in the DBRS analysis have been made regarding those loans since the last review.

The final legal maturity of the Notes is in February 2027, seven years beyond the latest date of the loans maturing, including loan extensions. 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 to repay bondholders.

At issuance, DBRS took the sovereign stress into consideration by adjusting the sizing parameters used in its ratings. On 13 January 2017, DBRS downgraded the Republic of Italy to BBB (high), and consequently, an additional stress was applied to the sizing parameters used in this transaction. For a more detailed discussion of the Italy rating downgrade, please refer to http://dbrs.com/research/304610.

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 the Servicer, Mount Street Mortgage Servicing Limited.

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.

The last rating action on this transaction took place on 17 February 2017 when DBRS placed three classes Under Review with Negative Implications and confirmed Class A.

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 (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 downgrade of Class A to BB (high) (sf)
-- 20% decline in DBRS NCF, expected downgrade of Class A to BB (low) (sf)

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

Class C Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected downgrade of Class C to CCC (sf)
-- 20% decline in DBRS NCF, expected downgrade of Class C to CCC (sf)

Class D Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected downgrade of Class D to CCC (sf)
-- 20% decline in DBRS NCF, expected downgrade of Class D to CCC (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: Jorge Lopez Herguido, Financial Analyst, EU CMBS
Rating Committee Chair: Christian Aufsatz, Managing Director, Global Structured Finance
Initial Rating Date: 22 January 2015

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
-- Derivative Criteria for European Structured Finance Transactions
-- Unified Interest Rate Model for European Securitisation

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