Morningstar DBRS Confirms Credit Ratings on River Green Finance 2020 DAC

DBRS Ratings GmbH (Morningstar DBRS) took the following credit rating actions on the bonds issued by River Green Finance 2020 DAC (the Issuer):

-- Class A confirmed at A (high) (sf)
-- Class B confirmed at BBB (high) (sf)
-- Class C confirmed at BB (high) (sf)
-- Class D confirmed at B (high) (sf)

All trends remain Negative.

CREDIT RATING RATIONALE
The rating confirmation follows a full review of the transaction based on the currently available information. The credit ratings are supported by improved credit metrics following the deleveraging considering the amendment of the loan in August 2024. However, the dated property valuation (from January 2023) for the specially serviced loan, combined with the lease negotiations with occupiers are a source of uncertainty for both loan and CMBS transaction, resulting in the continued negative trend. An updated property valuation is expected to be available soon.

The transaction is the securitisation of a floating-rate commercial real estate loan that is split into two different facilities (Facility A and Facility B), both advanced by Goldman Sachs International Bank (GSIB) for the purpose of acquiring the River Ouest office building by a group of investors led by LRC Real Estate Limited (the Sponsors) from a consortium of sellers. The EUR 35.8 million Facility A was advanced to four ring-fenced compartments of LRC RE-2, a Luxembourg-reserved alternative investment fund with variable share capital (the Facility A Borrowers), while facility B was advanced to a French Organisme de Placement Collectif Immobilier, a real estate investment company with variable capital (the Facility B Borrower). The Issuer purchased the loan using the proceeds from the notes' issuance (95.0% of the purchase price) and from an Issuer loan advanced by GSIB (5.0% of the purchase price).

The senior loan is secured by River Ouest, a single campus-style office property built by HRO Group in 2009 and located on the right bank of the River Seine in the Bezons municipality in the western suburb of Paris. It comprises a seven-storey office building and an adjacent two-storey service/amenity building. A major business district, La Défense, is approximately five kilometres southeast of the asset. The property has served as global headquarters of a French information technology service provider, Atos SE (Atos), since its completion in 2009. Atos provided 82.8% of the property's gross rental income (GRI) as of January 2025, with one other tenant, EMC2, contributing to the remaining 13.7% of the GRI. Atos faced significant financial challenges during 2024 and entered accelerated safeguard proceedings in July 2024. The hearing took place in December 2024 and was conclusive of a comprehensive financial restructuring transaction.

The initial three-year loan was scheduled to mature on 15 January 2023, with two one-year extension options available to the borrower. The second and last extension option was not exercised, and the loan matured on 15 January 2024. As the borrower failed to repay, the loan was transferred into special servicing on 16 January 2024. The special servicer has consented to certain modifications to, and waivers of, the terms of the loan finance documents. Loan amendments took effect on 6 August 2024. As part of agreed modifications, the maturity date of the loan was extended to the loan payment date falling in April 2026 with the possibility of one further year extension to April 2027, provided that at such time no loan default is continuing or would result from such extension.

Morningstar DBRS' surveillance analysis concluded that the modifications and waivers implemented by the special servicer were credit neutral to the notes. For more details see https://dbrs.morningstar.com/research/438232.

In November 2024, the servicer notified that conditions subsequent in reference to certain amendments due to the French Trust agreements were satisfied. These included a veto right and/or prior consent of the French Trustee in respect of any amendments to an occupational lease to the main tenant Atos, and the mechanism of release of all or part of the EUR 10 million deposited in accounts of the French Trustee.

There was no change in the priority of payments, with receipts continuing to be applied sequentially to the notes. Class X payments are diverted, and excess interest available funds are applied to pay down the senior notes. Following the restructuring, the loan is in cash sweep. The borrower prepaid EUR 7 million since August 2024, and the outstanding loan amount stands at EUR 180.9 million as of the April 2025 interest payment date (IPD).

As part of the restructuring, the loan-to-value ratio (LTV) covenant has been waived until April 2026, and the debt yield (DY) financial covenant ceased to apply. Based on Morningstar DBRS' calculation, the LTV stood at 58.9% on the April 2025 IPD (compared with 60.9% in April 2024) and the DY ratio at 13.7% as of the January 2025 IPD (compared with January 2024).

As of January 2025, the debt coverage ratio stood at 1.39 times based on loan margin of 2.4%, a cap rate of 5%, and reported net rental income (NRI) of EUR 25.1 million. NRI increased by 4.7% on a year-over-year basis to EUR 25.1 million in January 2025 from EUR 24.0 million in January 2024. As of the January 2025 IPD, the vacancy was 3.5%, stable since July 2024 when one tenant (Sophos) vacated.

A hedging agreement with a strike rate of 5.0% per annum is in place until April 2027.

The latest reported valuation conducted by CBRE Limited in January 2023 indicated a collateral value of EUR 307.0 million. A new valuation has been mandated and is expected to be available soon.

Lease negotiations with the current tenants, Atos and EMC2, are ongoing. As of January 2025, Atos has continued to pay rent at contracted levels. However, in January 2025 the servicer reported arrears carried forward for a total of EUR 3.9 million in relation to Atos' portion of the building management expenses and service charge. April 2025 reporting data on rent and occupancy are not yet available; however, the special servicer is expecting Atos to continue to fulfill current lease terms until the regear is agreed. Atos' lease terminates on 31 July 2030, while EMC2's lease expired in September 2023. EMC2 continues to pay rent as per the term of the original lease terms.

Morningstar DBRS did not update its net cash flow assumption, which was last revised in May 2024, with vacancy assumption increased to 17.2% from 15% and market rent assumption adjusted to incorporate downward pressure on rental cash flow of the contracted rent. However, additional market value stress was applied by increasing the cap rate to 7.50% from 7.25%. According to Morningstar DBRS' European CMBS Rating and Surveillance Methodology, the presence of dated information, especially property valuations older than 12 months for not fully performing loans, can result in Morningstar DBRS stressing its property value assumption, to reflect the additional uncertainty.

Morningstar DBRS NCF currently stands at EUR 14.2 million and Morningstar DBRS Value at EUR 188.8 million, representing a haircut of 38.5% to the latest available valuation dated January 2023.

The transaction benefits from a liquidity reserve facility, which totals EUR 10.1 million in April 2025 (EUR 11.3 million at origination) and is provided by Crédit Agricole Corporate and Investment Bank. The liquidity facility covers the Class A through Class C notes as well as the issuer loan. Morningstar DBRS estimates that the commitment amount as of the April 2025 IPD is equivalent to approximately 13 months of coverage based on the 5.0% strike rate.

The final legal maturity of the notes is on 22 January 2032, reflecting a shorter tail period of under five years instead of the seven years at issuance, considering the loan extension agreed in August 2024.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, or Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024) https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is:
European CMBS Rating and Surveillance Methodology (4 March 2025) https://dbrs.morningstar.com/research/449278.

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

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

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

For a more detailed discussion of the sovereign risk impact on Structured Finance credit ratings, please refer to "Appendix C: The Impact of Sovereign Credit Ratings on Other Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/436000.

The sources of data and information used for these credit ratings include RIS notification and quarterly servicer reports prepared by Mount Street Mortgage Servicing Limited.

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

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

Morningstar DBRS considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

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

The last credit rating action on this issuer took place on 7 May 2024 when Morningstar DBRS downgraded its credit ratings on all classes of notes and changed the trend to Negative.

The lead analyst responsibilities for this transaction have been transferred to Patrizia Catanese.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit rating, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit rating (the base case):

Class A Risk Sensitivity:

-- 10% decline in Morningstar DBRS NCF, expected credit rating of Class A notes at A (low) (sf)
-- 20% decline in Morningstar DBRS NCF, expected credit rating of Class A notes at BBB (high) (sf)

Class B Risk Sensitivity:

-- 10% decline in Morningstar DBRS NCF, expected credit rating of Class B notes at BBB (low) (sf)
-- 20% decline in Morningstar DBRS NCF, expected credit rating of Class B notes at BB (high) (sf)

Class C Risk Sensitivity:

-- 10% decline in Morningstar DBRS NCF, expected credit rating of Class C notes at BB (sf)
-- 20% decline in Morningstar DBRS NCF, expected credit rating of Class C notes at B (high) (sf)

Class D Risk Sensitivity:

-- 10% decline in Morningstar DBRS NCF, expected credit rating of Class D notes at B (low) (sf)
-- 20% decline in Morningstar DBRS NCF, expected credit rating of Class D notes at below B (low) (sf)

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Patrizia Catanese, Assistant Vice President,
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 12 March 2020

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
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Amtsgericht Frankfurt am Main, HRB 110259

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

European CMBS Rating and Surveillance Methodology (4 March 2025)
https://dbrs.morningstar.com/research/449278

Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024)
https://dbrs.morningstar.com/research/443196

Interest Rate Stresses for European Structured Finance Transactions
https://dbrs.morningstar.com/research/439913

Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024)
https://dbrs.morningstar.com/research/437781

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/439604

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.