Class A notes to AA (sf) from
Class B notes to A (low) (sf) from AA (low) (sf)
Class C notes to BBB (sf) from A (low) (sf)
Class D notes to BB (sf) from BBB (low) (sf)
Class E notes to B (high) (sf) from BB (high) (sf)
All trends are negative.
CREDIT RATING RATIONALE
The rating downgrades reflect the fact that, although the loan is currently performing, the cash flow generated by the property and the vacancy level have not materially improved since issuance and the sponsor is still quite far away from completing the initial business plan. There is uncertainty regarding the refinancing of the loan, which matures on
The transaction was originally backed by a
In
There are no DY or LTV financial covenants applicable either prior to a permitted transfer or following a permitted transfer. DBRS Morningstar's view is that potential performance deteriorations can be captured and mitigated by the presence of the tightening cash trap covenants in the facility agreement. The loan is structured with increasingly stringent DY cash trap covenants requiring the sponsors to improve the asset performance in order to remain compliant with the loan terms. The DY covenants are tested quarterly on each IPD in years 2 and 3 at 7% and 8%, respectively. Additionally, the structure includes a senior LTV cash trap covenant set at 70% LTV for the three-year loan term.
Given the increasingly stringent DY cash trap covenants and the long-run trend of the DY, DBRS expects that the DY cash trap will be breached at the
The current loan balance stands at
The senior loan carries a floating rate of Sterling Overnight Index Average (Sonia; floored at 0%) plus a 2.85% margin for a three-year term. The interest rate risk is fully hedged with a prepaid cap, with a maximum strike rate of 1.0% provided by
The interest-only loan has a three-year term to
The loan previously benefited from a
The transaction also benefits from an issuer liquidity reserve in an aggregate amount of
The transaction, expected to repay on or before
As of the
The weighted-average unexpired lease term (WAULT) and the weighted-average unexpired lease term to break option (WAULB) have also remained relatively long (i.e., longer than the maturity of the loan) at 7.05 years and 5.89 years, respectively.
The tenant profile is not very granular or diversified and currently includes a tenant that is in administration and a tenant whose rent is being paid by a guarantor. Both tenants are within the top five largest tenants by annual contractual rent. The property has significant tenant concentration and exposure to a single firm (a consultancy). In DBRS Morningstar's view, the risk can be mitigated by the high credit quality of the tenant. The largest tenant represents 33.23% of the annual contractual rent in the portfolio and the second-largest tenant represents 21.88% of the annual contractual rent (so the two largest tenants represent 55.11% of the annual contractual rent), while the top five tenants provide in total circa 86.06% of the gross rental income ('GRI') of the portfolio, and the top 10 tenants provide in total circa 99.37% of the annual contractual rent.
During the period
DBRS Morningstar updated the DBRS Morningstar net cash flow (NCF) to
DBRS Morningstar's credit rating on Class A, B, C, D, and Class E of the commercial mortgage-backed floating notes issued by
DBRS Morningstar's credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations. For example, pro rata default interest, Sonia Excess Amount, and prepayment fees.
DBRS Morningstar's long-term credit ratings provide opinions on risk of default. DBRS Morningstar 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, GOVERNANCE CONSIDERATIONS
General Considerations
There were no Environmental/ Social/ Governance factor(s) that had a significant or relevant effect on the credit analysis.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/416784.
Notes:
All figures are in Pound Sterling unless otherwise noted.
The principal methodology applicable to the credit ratings is the European CMBS Rating and Surveillance Methodology (
Other methodologies referenced in this transaction are listed at the end of this press release.
DBRS Morningstar 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 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 Ratings on Other DBRS Morningstar Credit Ratings' of the ' 'Global Methodology for Rating Sovereign Governments' at: https://www.dbrsmorningstar.com/research/401817.
The DBRS
The sources of data and information used for these credit ratings include quarterly Investor Reports prepared by
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial credit rating, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the credit rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.
DBRS Morningstar 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 transaction took place on
Information regarding DBRS Morningstar credit ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.
Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit rating (the Base Case):
Class A Risk Sensitivity:
a 10% decline in DBRS Morningstar's NCF would lead to an expected rating of the Class A notes at A (sf)
a 20% decline in DBRS Morningstar's NCF would lead to an expected rating of the Class A notes at BBB (high) (sf)
Class B Risk Sensitivity:
a 10% decline in DBRS Morningstar's NCF would lead to an expected rating of the Class B notes at BBB (sf)
a 20% decline in DBRS Morningstar's NCF would lead to an expected rating of the Class B notes at BB (high) (sf)
Class
a 10% decline in DBRS Morningstar's NCF would lead to an expected rating of the Class C notes at BB (high) (sf)
a 20% decline in DBRS Morningstar's NCF would lead to an expected rating of the Class C notes at BB (low) (sf)
Class D Risk Sensitivity:
a 10% decline in DBRS Morningstar's NCF would lead to an expected rating of the Class D notes at B (sf)
a 20% decline in DBRS Morningstar's NCF would lead to an expected rating of the Class D notes at CCC (high) (sf)
Class E Risk Sensitivity:
a 10% decline in DBRS Morningstar's NCF would lead to an expected rating of the Class E notes at CCC (high) (sf)
a 20% decline in DBRS Morningstar's NCF would lead to an expected rating of the Class E notes at CCC (sf)
For further information on DBRS Morningstar historical default rates published by the
These credit ratings are endorsed by
Lead Analyst:
Rating Committee Chair:
Initial Rating Date:
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The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
European CMBS Rating and Surveillance Methodology (
https://www.dbrsmorningstar.com/research/407379/european-cmbs-rating-and-surveillance-methodology.
Legal Criteria for European Structured Finance Transactions (
Interest Rate Stresses for European Structured Finance Transactions (
https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
Derivative Criteria for European Structured Finance Transactions (
https://www.dbrsmorningstar.com/research/415976/derivative-criteria-for-european-structured-finance-transactions.
DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/278375.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.
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