DBRS Confirms Rating of Morguard Realty Holdings Inc. & Bay Bloor Equities Inc. (77 Bloor Street West)

DBRS Limited (DBRS) has today confirmed the rating of A (high) on the 4.964% Mortgage Loan due September 1, 2020 (the Mortgage Loan), made by a major Canadian financial institution (the Lender) to Morguard Realty Holdings Inc. & Bay Bloor Equities Inc. (the Borrowers). The Mortgage Loan is secured by a freehold interest in a 21-story Class B office building with high-grade retail and storage space located at 77 Bloor Street West (the Subject Property).

This rating reflects DBRS’s opinion on the first-dollar loss that the Lender may experience regarding the Borrowers’ interest and principal payment obligations in respect of the Mortgage Loan solely based on the cash flows (not necessarily considering the timing of those cash flows) generated by the Subject Property as well as on the current and/or future value of such property.

The Mortgage Loan was originated by the Lender, subject to a 4.964% interest rate per annum, calculated monthly and compounded semi-annually, not in advance, for a term maturing on September 1, 2020, and a 25-year amortization schedule. The Mortgage Loan has an outstanding balance of $21.6 million as of July 1, 2016.

DBRS assumes that the Borrowers will need to refinance at the end of the Mortgage Loan in 2020 to pay off the principal remaining on the Mortgage Loan and the rating considers the ability of the Borrowers to do so.

Based on its own underwriting of the property cash flows, DBRS derived a robust term debt service coverage ratio (DSCR) that is supportive of the rating level. The refinance DSCR is reflective of an 8.5% constant that DBRS applied to the balloon balance of the Mortgage Loan to account for an increased cost of capital upon maturity. Overall, DBRS views the credit metrics of the Mortgage Loan to be supportive of the A (high) rating.

This rating considers the in-place rental income of the Subject Property and the Borrowers’ principal and interest payment obligations regarding the Mortgage Loan, but does not consider the Borrowers’ other obligations or any structural deficiencies that may exist in any organizational or transaction documents.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are 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 North American Surveillance Methodology and North American CMBS Rating Methodology, which can be found on our website under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting 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.