DBRS Assigns Provisional Ratings to PFP 2015-2, Ltd.

DBRS, Inc. (DBRS) has today assigned provisional ratings to the Floating Rate Notes (the Notes) to be issued by PFP 2015-2, Ltd. The 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 (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)

Classes F and G are non-offered classes.

With respect to the deferrable notes (Class C, Class D, Class E, Class F and Class G), 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 the timely payments of distributable interest and, in the case of deferred interest notes, the ultimate 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 29 floating-rate mortgage loans with a $624.1 million current trust balance, secured by 31 commercial, multifamily and hospitality properties. Twenty-four of the loans, representing 77.5% 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 $90.8 million (ranging from $500,000 million to $19.9 million per loan). The proceeds necessary to fulfill the future funding obligations will be drawn on primarily from a committed warehouse line and will be held outside the trust, but will be pari passu with the trust participations. 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 Bank of America Plaza, 2665 North First Street, Carlsbad Executive Plaza, Cal Center, 6400 Shafer Court, Latham Square, Red Lion Baltimore, Bel-Kirk Building and 364 Bush Street (the future funding associated with these nine loans will not be eligible to be contributed to the transaction). The future funding is generally to be used for property renovations and leasing costs, and each property has a business plan to execute that is expected to increase net cash flow.

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 Net Cash Flow and their respective stressed interest rates, there were 23 loans, 78.2% of the pool, with term debt service coverage ratios (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 19 loans, representing 70.7% 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 sufficient to support such treatment.

One loan, Valley Plaza, representing 2.6% of the pool, has not closed as of the publication date of the DBRS presale report, and may not close prior to the closing of this transaction. If the loan does not close prior to the closing date, 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 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 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 July 2034. 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.

For more information, please refer to the DBRS presale report on the DBRS website.

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

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

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form-15E) which contains the description of the information that the third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While DBRS did not rely on the due diligence services outlined in Form-15E, DBRS did use the Data File outlined in the Independent Accountant’s Report in its analysis to determine the ratings.

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

The full report providing additional analytical detail is available by clicking on the link below or by contacting us at info@dbrs.com.