DBRS Confirms Ratings of Taurus 2015-3 EU Designated Activity Company

DBRS Ratings Limited (DBRS) has today confirmed the ratings on the Commercial Mortgage-Backed Floating-Rate Notes Due April 2028 issued by Taurus 2015-3 EU Designated Activity Company, as follows:

• Class A at AAA (sf)
• Class B at AAA (sf)
• Class C at AA (sf)
• Class D at A (sf)
• Class E at BBB (sf)
• Class F at BB (sf)

All trends are Stable.

DBRS has reviewed this transaction after the second-largest loan, the TEIF Loan, prepaid in full in January 2017. The rating confirmations reflect the continued stable performance of the remaining BiLux Loan since issuance.

At issuance, Taurus 2015-3 Designated Activity Company was a securitisation of two floating-rate commercial real estate loans originated by Bank of America Merrill Lynch International. In December 2016, the servicer confirmed the sale of all the TEIF Loan’s French assets and subsequent repayment of the loan. The loan proceeds were applied pro rata to the notes, resulting in a total collateral reduction of 44.1% since issuance. According to the January 2017 payment report, the outstanding transaction balance is EUR 81.3 million.

The remaining loan, the BiLux Loan, was originated in May 2015, and served to fund the acquisition of 31 light industrial properties located in Germany and the Netherlands. At issuance, 78% of the senior loan was securitised, resulting in a whole loan balance of EUR 103.8 million and securitised balance of EUR 81.3 million. There has been no collateral reduction since issuance and the balance remains the same. The loan is sponsored by Starwood Capital Group L.P. (Starwood Capital) and M7 Real Estate Limited serves as the asset manager for the properties.

As of the most recent investor report from January 2017, the BiLux portfolio continues to show tenant diversification as the properties comprise 215 tenants, 23 more than at issuance. The portfolio vacancy rate has improved to 13.9%, which is slightly lower than the 15.1% vacancy rate at issuance and well below the initial DBRS underwritten vacancy rate of 27.3%. The weighted-average lease term (inclusive of break options) for the portfolio is 3.1 years compared to the remaining loan term of approximately 3.2 years. A total of 111 leases, contributing 3.7% of the total net rental income have a lease expiration or break option during 2017. The total gross rental income of the protfolio remains stable at EUR 16.5 million as of January 2017. According to the investor report from January 2017, the projected net rental income was EUR 10.6 million, in-line with the first reported cash flow after issuance. DBRS has updated its underwriten net cash flow (NCF) to EUR 9.2 million, which incorporates a portfolio vacancy assumption of 20%. This still represents a 13.3% haircut to the most recently reported portfolio NOI. In May 2016, the portfolio was revalued at EUR 163.3 million, which reflects an increase of 10.1% since issuance. As a result, the DBRS current underwritten value of EUR 117.0 million represents a 28.3% haircut over the most recent valuation. The current whole loan-to-value ratio has decreased to 63.5%, from 70.0% at issuance.

Originally, the transaction was supported by a EUR 8.2 million liquidity facility provided by Bank of America Merrill Lynch, N.A. The liquidity facility closing balance has decreased to EUR 4.6 million following the repayment of the TEIF Loan, proportional to the remaining outstanding balance. There have been no liquidity facility drawings since issuance.

The final legal maturity of the Notes is in April 2028, eight years beyond the maturity date of the remaining loan, BiLux, in April 2020. If necessary, this is believed to be sufficient time to enforce the loan collateral and repay bondholders, given the security structure and jurisdiction of the underlying loans.

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 this rating include the servicer, Situs Asset Management Limited and the Trustee, U.S. Bank Trustees 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 29 September 2016, when DBRS confirmed ratings on this transaction.

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 AAA (sf)

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

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

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

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

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.

Lead Analyst: Jorge Lopez Herguido, Financial Analyst, Global Structured Finance
Rating Committee Chair: Erin Stafford, Managing Director, Head of North American CMBS, Global Structured Finance
Initial Rating Date: 3 September 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 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