OVERVIEW
- We have assigned our credit ratings to Scorpio (European Loan Conduit No. 34)'s class RFN, A1, A2, B, C, D, and E notes.
- The senior commercial mortgage loan backing this true sale transaction is secured by 112 light industrial properties in the U.K.
- Our ratings reflect our assessment of the underlying loan's credit, cash flow, and legal characteristics, among other factors.
LONDON (S&P Global Ratings) June 10, 2019--S&P Global Ratings has today assigned its credit ratings to Scorpio (European Loan Conduit No.34) DAC's class RFN, A1, A2, B, C, D, and E notes. At closing, Scorpio (European Loan Conduit No. 34) also issued unrated class X notes. The transaction is backed by one senior loan, which Morgan Stanley Principal Funding Inc. (Morgan Stanley) originated in May 2019 to facilitate the acquisition of the light industrial portfolio by The Blackstone Group L.P. The senior loan backing this true sale transaction equals £286.4 million and is secured by 112 light industrial properties in the U.K. The securitized loan balance is 82.5% of the senior loan (£286.4 million) with Morgan Stanley holding a £50.0 million interest that ranks pari passu with the securitized loan. The issuer created a £12.4 million (representing 5% of the securitized senior loan) vertical risk retention loan (VRR loan) in favor of Morgan Stanley to satisfy EU and U.S. risk retention requirements. The portfolio is essentially concentrated in light industrial properties spread out across England, Scotland, and Wales. The appraisers have valued the portfolio at £428.6 million, and the current loan-to-value (LTV) ratio is 66.8%. The two-year loan (with three one-year extension options) does not provide for amortization or default covenants prior to a permitted change in control. Instead, there are cash trap mechanisms set at a 75.00% LTV ratio, or a minimum debt yield set at 9.24%. Since we assigned preliminary ratings, the borrower entered into an interest rate cap at a strike rate of 2.0%. The replacement language in the hedging agreement is in line with our current counterparty criteria to support a maximum potential rating of 'AAA (sf)' on the notes (see "Counterparty Risk Framework: Methodology And Assumptions," published on March 8, 2019). . Our ratings address Scorpio (European Loan Conduit No. 34)'s ability to meet timely interest payments and principal repayment no later than the legal final maturity in May 2029. Our ratings on the notes reflect our assessment of the underlying loan's credit, cash flow, and legal characteristics, and an analysis of the transaction's counterparty and operational risks.
RELATED CRITERIA
- Criteria | Structured Finance | General: Counterparty Risk Framework: Methodology And Assumptions, March 8, 2019
- Criteria | Structured Finance | General: Incorporating Sovereign Risk In Rating Structured Finance Securities: Methodology And Assumptions, Jan. 30, 2019
- Legal Criteria: Structured Finance: Asset Isolation And Special-Purpose Entity Methodology, March 29, 2017
- General Criteria: Principles For Rating Debt Issues Based On Imputed Promises, Dec. 19, 2014
- Criteria | Structured Finance | General: Global Framework For Assessing Operational Risk In Structured Finance Transactions, Oct. 9, 2014
- Criteria | Structured Finance | CMBS: European CMBS Methodology And Assumptions, Nov. 7, 2012
- Criteria - Structured Finance - General: Criteria Methodology Applied To Fees, Expenses, And Indemnifications, July 12, 2012
- General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012
- General Criteria: Methodology: Credit Stability Criteria, May 3, 2010
- Criteria - Structured Finance - General: Standard & Poor's Revises Criteria Methodology For Servicer Risk Assessment, May 28, 2009
- Criteria | Structured Finance | CMBS: Methodology For Analyzing Loan-Level Limited Purpose Entities In European CMBS, Sept. 1, 2004
RELATED RESEARCH
- European CMBS Monthly Bulletin (May 2019), May 22, 2019
- 2017 EMEA CMBS Scenario And Sensitivity Analysis, July 6, 2017
- S&P Global Ratings Definitions, June 26, 2017
- Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016
- European Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016
- Application Of Property Evaluation Methodology In European CMBS Transactions, Nov. 7, 2012
RATINGS ASSIGNED Scorpio (European Loan Conduit No. 34) DAC Class Rating Amount (mil. £) RFN AAA (sf) 10.4 A1 AAA (sf) 112.3 A2 AA+ (sf) 14.5 B AA- (sf) 14.5 C A (sf) 23.5 D BBB- (sf) 35.3 E BB- (sf) 24.5 X NR 0.1 NR--Not rated.
| Primary Credit Analyst: | Edward C Twort, London (44) 20-7176-3992; edward.twort@spglobal.com |
| Secondary Contact: | Mathias Herzog, Frankfurt (49) 69-33-999-112; mathias.herzog@spglobal.com |
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