DBRS Confirms Ratings of Taurus CMBS (Pan-Europe) 2007-1 Limited and Maintains Class A1 with Negative Trend

DBRS Ratings Limited (DBRS) confirmed the ratings of the following classes of Commercial Mortgage Backed Floating Rate Notes (the Notes) issued by Taurus CMBS (Pan-Europe) 2007-1 DAC, as follows:

-- Class A1 at B (sf)
-- Class A2 at CCC (sf)
-- Class B at CCC (sf)
-- Class C at CCC (sf)
-- Class D at C (sf)

The trend on Class A1 remains Negative and Classes C and D also have Interest in Arrears.

The rating confirmations and the maintained Negative trend for Class A1, reflect the ongoing uncertainty surrounding the disposal of assets in the Fishman JEC Portfolio (Fishman JEC) under the Safeguard plan, which could delay repayment at bond maturity in February 2020, ten months prior to the loan’s extended maturity date of December 2020.

The transaction’s outstanding balance is EUR 134.6 million, which represents a 75.5% reduction since issuance. The two remaining loans in the securitsation, the Hutley and Fishman JEC, are both in Special Servicing. According to the RIS Notice dated 27 January 2017, an Extraordinary Resolution to terminate the Liquidity Facility Agreement was approved by the Class A1 noteholders. The proposal followed a 10.6% per annum rise in the cost of sustaining the facility caused by changes in the rating of the Notes.

The Hutley loan is the smaller of the two loans, with a current securitised balance of EUR 16.2 million representing 12.1% of the outstanding pool. Upon its extended maturity date of July 2016, the Borrower informed the Servicer and Special Servicer that it was in the process of negotiating a refinancing for the Hutley Whole Loan and that the completion of this refinancing was subject to the locating of the relevant Land Charge certificates. As the Land Charge certificates were unable to be located, a nine-month cancellation procedure had to be completed before replacement Land Charge certificates were issued. The Hutley loan was originally secured by 11 office, retail and leisure properties located throughout Germany. However, in July 2017, after the replacement of the Land Charge certificates, the Nordhausen, Osterburg and Meiningen assets were sold for a combined total of EUR 2.3 million. Under the terms of the loan facility agreement, the overall release amount of the three properties was EUR 6.2 million, which was used to repay the loan in July 2017. Excluding the three assets sold, the Hutley portfolio has a current valuation of EUR 40.2 million and loan-to-value ratio of 42.0%. The occupancy of the Hutley loan increased to 90.7% in July 2017, with the top five tenants accounting for 64.7% of the total rent and having a weighted-average remaining lease-to-break option of five years and two months. According to the Special Servicer, a refinancing and/or additional property disposals are anticipated in order to repay the loan in full at the next Interest Payment Date (IPD) in October 2017.

The Fishman JEC loan has a current securitised balance of EUR 118.3 million, which represents 87.9% of the remaining pool and a collateral reduction of 13.5% since issuance. The loan was transferred to Special Servicing in May 2014 following the Borrower’s initiaton of insolvency proceedings and the French Courts formally adopted a Safeguard Plan for the Fishman JEC Borrowers in September 2015. On each anniversary of the adoption of the Safeguard Plan, the loan is scheduled to amortise by an increasing percentage of the loan balance; however, there was a dispute between the borrowers and the Special Servicer over the correct calculation of the 5% amortisation payment due in September 2016. The Special Servicer disagreed with the Borrower’s amortisation payment of EUR 13,247, which had deducted sale proceeds of EUR 4.4 million from the disposal of the Sallanches and St Ouen properties in January 2015. The most recent RIS notice, published on 21 April 2017, confirmed that an amicable solution had been reached in regard to the interpretation of the calculation of the amortisation payments, allowing the former payment to be forwarded to the September 2016 amortisation payment date. Upon the introduction of the Safeguard Plan in September 2015, the Fishman JEC borrowers were obliged to start marketing the portfolio’s remaining 16 French office and industrial properties by defined dates. As of August 2017, 13 properties remain in the portfolio after the sale of the Grenoble Belgique assets in 2015 (EUR 590,020) and the Lens and Toulouse assets in Q2 2017 (EUR 3.7 million). The disposal of assets has reportedly been delayed due to the amortisation dispute and the renegotiation of leases with anchor tenants. However, the portfolio’s revised sales plan aims to complete all disposals within the orginial Safeguard timeframe, with seven additional asset sales anticipated in Q3 2017. Under the excess cash clause of the Safeguard Plan a payment of EUR 5.5 million was also used to repay the loan at the March 2017 IPD. Additionally, a proposal has been made to release EUR 3.0 million from the loan’s cash reserve account, which currently amounts to EUR 8.0 million. The reduction in the retention amount is currently pending court approval, with the decision expected in September 2017. Both the excess cash payment and the potential release amount from the cash reserve account will be excluded from the next 5% amortisation payment, which is due on 7 September 2017. The Fishman JEC portfolio is currently well occupied with a vacancy rate of 2.9%. However, the top five tenants represent 74.2% of the total rent and have a weighted-average remaining lease-to-break option of 11 months. Based on the portfolio’s most recent valuation from December 2014 and excluding the assets sold, the current market value is EUR 122.9 million, which results in a loan-to-value ratio of 96.2%. The interest in arrears designation was removed from Classes A1, A2 and B in August 2016, following the adoption of the Safeguard Plan and the Special Servicer unfreezing payments allowing the issuer to clear the accrued interest on these notes. However, the Class C and D notes currently continue to have interest in arrears. While DBRS expects the Fishman JEC loan to continue to pay interest, the principal repayment at bond maturity will strongly depend on the borrowers’ ability to sell the assets in a timely manner.

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:

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 Capita Asset Services (Ireland) Limited and Capita Asset Services (UK) 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 these ratings 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 2 September 2016, when DBRS downgraded one class and confirmed four classes of Taurus CMBS (Pan-Europe) 2007-1 Limited.

Information regarding DBRS ratings, including definitions, policies and methodologies, is 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 A1 Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class CCC (sf)
-- 20% decline in DBRS NCF, expected rating of Class CCC (sf)

Class A2 Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class B at CCC (sf)
-- 20% decline in DBRS NCF, expected rating of Class B at CCC (sf)

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

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

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

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

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 and US regulations only.

Lead Analyst: Jorge Lopez Herguido, Financial Analyst
Rating Committee Chair: Erin Stafford, Managing Director
Initial Rating Date: 2 July 2007

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