DBRS Confirms Ratings on Canadian Commercial Mortgage Origination Trust 2013-2

DBRS, Inc. (DBRS) has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2013-2 issued by Canadian Commercial Mortgage Origination Trust 2013-2:

-- Class A at AAA (sf)
-- Class X at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)

All trends are Stable. DBRS does not rate the first loss piece, Class H.

The rating confirmations reflect the stable performance of the transaction since issuance. The collateral consists of 41 fixed-rate loans secured by 49 multifamily properties after one loan prepaid in November 2014. As of the November 2014 remittance report, the pool has a balance of $382.6 million, representing a collateral reduction of approximately 2.9% since issuance. According to YE2013 reporting, the pool has a weighted-average (WA) debt service coverage ratio (DSCR) of 1.50 times (x). The top 15 loans reported a YE2013 WA DSCR and WA debt yield of 1.56x and 9.2%, respectively. It should be noted that as the deal closed in December 2013, the YE2013 financial reports do not reflect a full year of servicer reporting.

As of the November 2014 remittance, there is one loan on the servicer’s watchlist, representing 1.3% of the current pool balance. Prospectus ID#29, Group Mach (Louis-Lumiere) is on the watchlist because of an occupancy decrease to 58.0% from 100% after the largest tenant, Hydro-Québec, vacated on August 31, 2014. In accordance with the lease terms, Hydro-Québec paid the early termination fee of $180,000, the equivalent of eight months’ rent. It was known at the time of securitization that Hydro-Québec would be terminating its lease. During the DBRS site inspection in November 2013, DBRS found the property quality to be Above Average, noting its expansive and modern feel, attractive finishes and highly desirable location. According to the borrower, an existing tenant is in negotiations to expand into the space previously occupied by Hydro-Québec. A preliminary lease amending agreement has reportedly been received and reviewed, but nothing has been formally executed at this time. This loan is cross-collateralized and cross-defaulted with three other loans in the pool. Together, these four loans represent 4.8% of the pool balance and reported a combined YE2013 DSCR of 1.40x.

Ten loans, representing 21.7% of the current pool balance, share common sponsorship through affiliates of True North Commercial Real Estate Investment Trust. Additionally, all assets securing these loans are managed by a related management entity, Starlight Investments Ltd. To mitigate this borrower concentration risk, DBRS applied an additional concentration penalty to all loans in the pool, further elevating the probability of default.

The DBRS analysis included an in-depth review of the top 15 loans and the loan on the servicer’s watchlist, which represent 52.6% of the current pool balance.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction, including details on the largest loans in the pool and loans on the servicer’s watchlist. The November 2014 Monthly CMBS Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact us at info@dbrs.com.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are CMBS Rating Methodology (January 2012) and CMBS North American Surveillance Methodology (November 2012), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.