DBRS Finalizes Provisional Ratings on JPMBB Commercial Mortgage Securities Trust 2015-C33

DBRS, Inc. (DBRS) has today finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-C33 (the Certificates) to be issued by JPMBB Commercial Mortgage Securities Trust 2015-C33. 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 X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-C at AAA (sf)
-- Class X-D at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)

Class D-1 and Class D-2 have been added to the capital structure and DBRS has assigned the following rating to the new classes:
--Class D-1 at BBB (sf)
--Class D-1 at BBB (low) (sf)

Classes X-C, X-D, D-1, D-2, D, E, F and G have been privately placed.

Up to the full certificate balance of the Class D-1 and Class D-2 certificates may be exchanged for the Class D certificates. Class D certificates may be exchanged for the full certificate balance of the Class D-1 and Class D-2 certificates.

The X-A, X-B, X-C and X-D 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 64 fixed-rate loans secured by 89 commercial and multifamily properties, comprising a total transaction balance of $761,784,213. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the loan term and its liquidity at maturity. When the cut-off loan balances were measured against the DBRS Stabilized net cash flow (NCF) and their respective actual constants, there were nine loans, representing 6.7% of the pool, with a DBRS Term debt service coverage ratio (DSCR) below 1.15 times (x), 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 41 loans, representing 63.3% of the pool, having DBRS Refinance (Refi) DSCRs below 1.00x; however, the DBRS Refi DSCRs for the loans are based on a weighted-average (WA) stressed refinance constant of 9.5%, which implies an interest rate of 8.8%, amortizing on a 30-year schedule. This represents a significant stress of 4.2% over the WA contractual interest rate of the loans in the pool. The loans’ probability of default (POD) is based on the more constraining of the DBRS Term or Refi DSCR.

Ten loans, representing 22.0% of the pool, are located in urban markets with increased liquidity that benefit from consistent investor demand, even in times of stress. In addition, there are only eight loans, representing 4.6% of the pool, leased to single tenants. Loans secured by properties occupied by single tenants have been found to have higher loans in the event of default. As such, DBRS modeled single-tenant properties with a higher probability of default (POD) and cash flow volatility compared with multi-tenant properties. Overall, the pool exhibits a relatively strong DBRS weighted-average term DSCR of 1.60x based on the whole loan balances, which indicates moderate default risk.

Ten loans, representing 19.7% of the pool, are secured by hotels, which have the highest cash flow volatility for all major property types as their income is derived from daily contracts rather than multi-year leases, and their expenses, which are 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. Eight loans, representing 41.6% of the pool, are structured with full IO payments for the full loan term, including six of the top loans and the largest loan in the pool, 32 Avenue of the Americas, which represents 16.4% of the pool. An additional nine loans, representing 18.1% of the pool, have partial IO periods ranging from 24 to 60 months, including five of the top 15. The DBRS Term DSCR is calculated by using the amortizing debt service obligation and the DBRS Refinance (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 Refi DSCR, so loans that lack amortization will be treated more punitively.

The DBRS sample included 28 of the 64 loans in the pool. Site inspections were performed on 28 of the 89 properties in the pool (66.5% of the pool by allocated loan balance). DBRS conducted meetings with the on-site property manager, leasing agent or a representative of the borrowing entity for 52.6% of the pool. The DBRS average sample NCF adjustment for the pool was -9.3% and ranged from -24.1% to +2.6%. DBRS identified eight loans representing 16.5% of the pool, with unfavorable sponsor strength, including three of the top 15 loans. DBRS increased the POD for the loans with identified sponsorship concerns.

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.

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form 15-E) 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 15-E, DBRS did use the Data File outlined in the Independent Accountant’s Report in its analysis to determine the ratings.