DBRS Assigns Provisional Ratings to CSAIL 2015-C2 Commercial Mortgage Trust

DBRS, Inc. (DBRS) has today assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-C2 (the Certificates) to be issued by CSAIL 2015-C2 Commercial Mortgage Trust. The trends are Stable.

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-E at AAA (sf)
-- Class X-F at AAA (sf)
-- Class X-NR 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 (sf)

Classes E, F, X-E, X-F, and X-NR will be privately placed.

The X-A, X-B, X-E, and X-F balances are notional. DBRS ratings on interest-only (IO) certificates address the likelihood of receiving interest based on the notional amount outstanding. DBRS considers the IO certificates’ position within the transaction payment waterfall when determining the appropriate rating.

The collateral consists of 118 fixed-rate loans secured by 160 commercial and multifamily properties comprising a total transaction balance of $1,380,701,089. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. When the cut-off loan balances were measured against the DBRS Stabilized NCF and their respective actual constants, five loans, representing 8.5% of the pool, had a DBRS Term DSCR below 1.15x, a threshold indicative of a higher likelihood of mid-term default. Additionally, to assess refinance risk given the current low interest rate environment, DBRS applied its refinance constants to the balloon amounts. This resulted in 44 loans, representing 50.9% of the pool, having a DBRS Refi DSCR below 1.00x. However, the DBRS Refi DSCR for the loans is based on a weighted-average (WA) stressed refinance constant of 9.9%, which implies an interest rate of 9.3%, amortizing on a 30-year schedule. This represents a significant stress of 5.1% over the WA interest rate of the loans in the pool.

Fifteen loans, representing 16.1% of the pool, are secured by hotels, including two of the top ten loans. Hotel properties have higher cash flow volatility than traditional property types, as their income, which is derived from daily contracts rather than multi-year leases, and their expenses, which are often mostly fixed, are quite high as a percent of revenue. These two factors cause revenue to fall swiftly during a downturn and cash flow to fall even faster due to the high operating leverage. DBRS cash flow volatility for hotels, which ultimately determines a loan’s POD, assumes between a 31.4% and 43.3% cash flow decline for a BBB stress and a 66.8% and 92.3% cash flow decline for AAA stress. In addition, the weighted-average DBRS Exit Debt Yield for loans secured by hotel properties is relatively strong, at 11.2%. Ten loans, representing 24.5% of the pool (including four in the top ten), are structured as IO for the full loan term. An additional 38 loans, representing 25.1% of the pool, have partial IO periods ranging from 12 months to 60 months. The DBRS Term DSCR is calculated by utilizing the amortizing debt service obligation, and the DBRS Refi DSCR is calculated considering the balloon balance and lack of amortization when determining refinance risk. DBRS determines POD based on the lower of Term or Refinance DSCR, so loans that lack amortization will be treated more punitively. The transaction is scheduled amortization by maturity is 13.2%.

The DBRS sample included 39 of the 118 loans in the pool, representing 63.5% of the pool by loan balance. The DBRS average sample NCF haircut for the pool was -8.4%. The pool is relatively diverse, as the top ten loans only represent 35.2%, which is below recent conduit transactions. Additionally, the pool has a concentration profile equivalent to that of a pool of 46 equal-sized loans. Diversity is further enhanced by the 11 loans, representing 13.7% of the pool, that are secured by two to 27 properties (53 in total). Additionally, four loans within the top ten (9200 & 9220 Sunset, Soho-Tribeca Grand Hotel Portfolio, The Depot and The Luxx), representing 16.0% of the pool, were modeled with Above Average property quality. Higher-quality properties are more likely to retain existing tenants and more easily attract new tenants, resulting in a more stable performance.

The ratings assigned to the Certificates by DBRS are based exclusively on the credit provided by the transaction structure and underlying trust assets. All classes 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 applicable methodology is North American CMBS Rating Methodology, which can be found on our website under Methodologies.

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.