DBRS Morningstar Confirms Ratings on Notes Issued by River Green Finance 2020 DAC

DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings of all classes of notes issued by River Green Finance 2020 DAC (the Issuer or the Transaction) as follows:

-- Class A notes at AAA (sf)
-- Class B notes at AA (low) (sf)
-- Class C notes at A (low) (sf)
-- Class D notes at BBB (sf)

All trends are Stable.

River Green Finance 2020 DAC is the securitisation of 100% of two floating-rate commercial real estate facilities advanced by Goldman Sachs International Bank (GS) to a French OPCI (the Facility B Borrower) and four ringfenced compartments of a Luxembourg investment company with a variable capital reserved alternative investment fund (the Facility A Borrowers).

The EUR 196.2 million acquisition facility has been reduced to EUR 194.7 million because of scheduled amortisation. Based on the October 2020 investor report, there is another EUR 7.0 million of proceeds being cash trapped as a result of a continuing Technical Items Cash Trap Event. The cash trap mechanism aims to incentivise the sponsor to carry out the immediate remedial works identified in the technical and environmental reports within nine months of utilisation date. However, because of the Coronavirus Disease (COVID-19) pandemic and national lockdowns, the remedial works linked to building insurance were completed as of October 2020, thus triggering the cash trap event. In DBRS Morningstar’s view, this delay has limited, if any, adverse impact for the asset value and is expected to be resolved soon.

The underlying asset is the River Ouest building located in Bezons and is the global headquarters of Atos. Since issuance, Atos has further extended its lease by one year to 31 July 2030 in exchange for three months rent-free. Meanwhile, the Sophos lease has gone into holding over as of October 2020 and the sponsor is talking with the tenant about an extension which had not yet been finalised as per the most recent investor report. Should the tenant decide to leave, the overall vacancy would increase to 3.5%. However, DBRS Morningstar does not consider that the potential departure would change its underwriting assumptions, especially based on its 11.9% vacancy rate assumption at issuance.

Moreover, as the tenants’ businesses were largely unaffected by the pandemic and current 21.7% value haircut maintained by DBRS Morningstar, no additional analytical adjustments related to the coronavirus pandemic were applied during this review.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many tenants and borrowers. DBRS Morningstar anticipates that vacancy rate increases and cash flow reductions may continue to arise for many CMBS borrowers, some meaningfully. In addition, commercial real estate (CRE) values will be negatively affected, at least in the short term, impacting refinancing prospects for maturing loans and expected recoveries for defaulted loans.

The loan will see its first maturity date is in 2022 and can be further extended for two years. DBRS Morningstar believes this could leave enough time for European office markets to recover from the short-term impact of the pandemic.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 28 January 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/372842/global-macroeconomic-scenarios-january-2021-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar’s analysis considered impacts consistent with the moderate scenario in the referenced reports.

On 16 June 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated CMBS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/362693/european-cmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS

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/373262.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “European CMBS Rating and Surveillance Methodology” (13 December 2019).

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.

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

These may be found at: http://www.dbrsmorningstar.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance 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/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include the investor reports prepared by Mount Street Global Limited U.S. Bank Global Corporate Trust Limited and cash manager reports prepared by since issuance.

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

DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.

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

DBRS Morningstar 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 10 February 2020, when DBRS Morningstar finalised its provisional ratings on the notes..

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.

To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the ratings (the Base Case):

Class A Notes Risk Sensitivity:
--A 10% decline in DBRS Morningstar net cash flow (NCF) would lead to an expected downgrade of the Class A notes to AA (high) (sf)
--A 20% decline in DBRS Morningstar NCF would lead to an expected downgrade of the Class A notes to AA (low) (sf)

Class B Notes Risk Sensitivity:
--A 10% decline in DBRS Morningstar NCF would lead to an expected downgrade of the Class B notes to A (sf)
--A 20% decline in DBRS Morningstar NCF would lead to an expected downgrade of the Class B notes to A (low) (sf)

Class C Notes Risk Sensitivity:
--A 10% decline in DBRS Morningstar NCF would lead to an expected downgrade of the Class C notes to BBB (high) (sf)
--A 20% decline in DBRS Morningstar NCF would lead to an expected downgrade of the Class C notes to BBB (low) (sf)

Class D Notes Risk Sensitivity:
--A 10% decline in DBRS Morningstar NCF would lead to an expected downgrade of the Class D notes to BB (high) (sf)
--A 20% decline in DBRS Morningstar NCF would lead to an expected downgrade of the Class D notes to BB (sf)

For further information on DBRS Morningstar 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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

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

Lead Analyst: Rick Shi, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 8 January 2020

DBRS Ratings GmbH
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Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.

-- European CMBS Rating and Surveillance Methodology (13 December 2019), https://www.dbrsmorningstar.com/research/354637/european-cmbs-rating-and-surveillance-methodology.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019), https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020), https://www.dbrsmorningstar.com/research/367292/interest-rate-stresses-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (24 September 2020), https://www.dbrsmorningstar.com/research/367092/derivative-criteria-for-european-structured-finance-transactions.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/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: http://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.