DBRS Finalizes Provisional Ratings of Resource Capital Corp. 2015-CRE3, Ltd.

DBRS Inc. (DBRS) has today finalized its provisional ratings of the following classes of secured floating-rate notes (the Notes) to be issued by Resource Capital Corp. 2015-CRE3, Ltd. All trends are Stable.

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

Classes A, A-S, B, C and D represent offered notes and will be privately placed. Classes E and F represent non-offered notes and will be retained by the Issuer.

With respect to the deferred interest notes (Class C, Class D, Class E and Class F), to the extent interest proceeds are not sufficient on a given payment date to pay accrued interest, interest will not be due and payable on the payment date and will instead be deferred and capitalized. The ratings assigned by DBRS contemplate timely payments of distributable interest and ultimately, in the case of deferred interest notes, recovery of deferred interest (inclusive of interest payable thereon at the applicable rate, to the extent permitted by law).

The collateral for the transaction consists of a pool of 20 floating-rate mortgage loans with a $346.2 million current balance, secured by 20 transitional commercial, multifamily and hospitality properties. Thirteen of the loans, representing 62.4% of the cut-off trust balance, have pari passu future funding participations that have yet to be fulfilled in their entirety. As of the cut-off date, the aggregate remaining future funding participations totaled $54.4 million (ranging from $1.0 million to $22.8 million per loan). The issuer will be permitted to set aside certain principal prepayments and use the funds to acquire all or a portion of the future funding participation that has been funded, except for the Chateaux Dijon Apartments, The Betsy Hotel, Sheraton Arlington Hotel and 100 North LaSalle Street (the future funding associated with these four loans will not be eligible to be contributed to the transaction). The floating-rate mortgages were analyzed to determine the probability of loan default over the term of the loan and its refinance risk at maturity, based on a fully extended loan term. Due to the floating-rate nature of the loans, DBRS applied a stress to the index (one-month LIBOR) that corresponded to the remaining fully extended term of the loans and added the respective contractual loan spread to determine a stressed interest rate over the loan term. When the maximum loan commitments were measured against the DBRS In-Place NCF and their respective stressed interest rates, there were 13 loans, 68.0% of the pool, with term DSCRs below 1.00x, a threshold indicative of a higher likelihood of term default. Additionally, to assess refinance risk, DBRS applied its refinance constants to the maximum loan commitment maturity balance, resulting in 15 loans, representing 77.4% of the pool, exhibiting refinance DSCRs below 1.00x. The properties are often transitioning, with potential upside in the cash flow; however, DBRS does not give full credit to the stabilization if there are no holdbacks or other loan structural features in place were insufficient to support such treatment.

One loan, 755 Sansome Street, representing 6.4% of the pool, has not closed as of the publication date of this report. A deposit will be made to the unused proceeds account in an amount equal to the expected initial principal balance of the loan. To the extent that this loan is not purchased within 90 days of securitization closing, the unused proceeds will pay down the notes on a modified pro rata basis in an amount necessary to cause the credit enhancement level for each class to equal the targeted credit enhancement, with all remaining proceeds distributed to the preferred shares. DBRS believes that the increase in subordination from the current levels to the adjusted levels appropriately accounts for the possible deterioration in both credit quality and diversity profile if the loan does not close within 90 days of securitization.

The transaction is a sequential-pay structure.

The DBRS rating addresses the likelihood of timely receipt of interest with contemplation of deferral as allowed for in the transaction documents and the ultimate payment of principal and interest (including any previously deferred) by the DBRS Rated Final Payment Date, defined as March 2032. The ratings assigned to the Notes by DBRS are based exclusively on the credit provided by the transaction structure and underlying trust assets. The Notes will be subject to ongoing surveillance, which could result in upgrades or downgrades by DBRS after the date of issuance.

Notes:
All figures are in U.S. dollars unless otherwise noted.

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

The Rule 17g-7 Report of Representations and Warranties is hereby incorporated by reference and can be found by clicking on the link to the right under Related Research, or by contacting us at info@dbrs.com.

The applicable methodologies are CMBS Rating Methodology and Unified Interest Rate Model for U.S. and European Structured Credit, which can be found on our website under Methodologies.