Fitch today assigned provisional ratings to Deutsche Bank’s Italian €355m DECO-2014 Gondola CMBS, the first new deal this year, secured on three loans to Blackstone.
There is a €185.5 Class A tranche; a €65m Class B tranche; €30.5m Class C; €52m Class D; and €22m Class E, all with final legal maturity in February 2026. LTVs at closing will vary between 57% and 62%.
The three loans, which mature in 2019, were provided by Deutsche Bank to fund Blackstone’s acquisition of 13 logistics centres, two shopping centres, two office buildings and one hotel located across Italy.
The ‘Mazer’ loan secured against the logistics assets and the ‘Gateway’ loan secured against the shopping centres both receive scheduled amortisation and have robust debt service coverage ratio cash trap covenants. The assets will receive annual revaluations.
The ‘Delphine’ loan, secured against the offices and hotel, is amortised through a partial cash sweep.
Fitch said all of the assets are exposed to some degree of leasing risk. The three largest tenants of the Mazer assets contribute 79% of the overall income, yet a large proportion of contracted income (40%) expires before loan maturity. Re-letting risk is partially mitigated by the logistics centres’ good locations, but especially assets in Ternate and Suzzara are expected to be exposed to long void periods if no longer occupied by the current tenant.
The Gateway assets have a high diversity of tenants, but as typical for Italian retail, are characterised by short lease terms.
The Delpine assets are let to three tenants with 66% of the income expiring or breaking prior to loan maturity. The re-letting risk of the Milan office properties is partially mitigated by the prime location and high quality of the assets, Fitch said. However, the Telecom Italia Rome asset could be exposed to long void periods, if vacated.
The weighted average LTV by loan amount is 72.3%; weighted average yield by net rent is 7.5%; and vacancy by net rent is 14.8%.
While the borrower-level interest rate caps expire at the loan’s scheduled maturities, Euribor on the notes thereafter will be capped at 7%, partially mitigating interest rate risk during the seven-year tail period.
Fitch said the long tail period reduces the risk of an uncompleted workout by bond maturity, particularly given the uncertainty over mortgage enforcement timing in Italy. Property disposals are allowed to a premium above their respective allocated loan amounts.
The deal also features a €100,000 Class X note. Any excess spread would be allocated accordingly.
The deal is notable as the first multi-loan CMBS since 2007 and marks another step along the road to CMBS recovering as a financing option for European borrowers. Yesterday, Bank of America Merrill Lynch launched a securitisation of a single loan made to Apollo Global Investors secured on the ‘Project Moon’ portfolio of UK secondary assets.