DBRS Finalizes Provisional Ratings on Real Estate Asset Liquidity Trust, Series 2016-2

DBRS Limited (DBRS) has today finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2016-2 (the Certificates) issued by Real Estate Asset Liquidity Trust, Series 2016-2:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)
-- Class X at AAA (sf)

Class X is 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 for the transaction consists of 47 fixed-rate loans secured by 72 properties. All loans in the transaction amortize for the entire term and 72.2% of the pool by loan balance amortizes on schedules that are 25 years or less, while 27.8% of the pool by loan balance will amortize on schedules that are between 25 years and 30 years. Seventeen loans (39.9% of the pool by loan balance) were modelled with Strong sponsor strength and 30 loans (55.3% of the pool by loan balance) were considered to have meaningful recourse to the respective sponsor; all else being equal, recourse loans typically have lower probability of default and were modelled as such.

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 Net Cash Flow and their respective actual constants, DBRS identified four loans, representing 6.4% of the pool, based on the trust A-note balances, as having a debt service coverage ratio (DSCR) below 1.15 times (x), indicating a higher likelihood of mid-term default. In addition, 38.9% of the loans in the pool by loan balance have DBRS Refinance DSCRs below 1.00x, based on the trust A-note balance. The DBRS weighted-average (WA) Term DSCR and Going-In Debt Yield are 1.38x and 8.6%, respectively, and the DBRS WA Refinance DSCR and Exit Debt Yield are 1.13x and 10.9%, respectively, based on the trust A-note balance.

DBRS sampled 32 loans, representing 86.1% of the pool by loan balance, and site inspections were performed on 50 properties, representing 83.9% of the pool by loan allocated balance. Of the sampled loans, eight loans, representing 33.1% of the pool balance, was considered to be of Above Average property quality.

The rating assigned to Class G differs from the higher ratings implied by the quantitative model. DBRS considers this difference to be a material deviation and, in this case, the ratings reflect expected dispersion of loan-level cash flows post-issuance and qualitative loan-level factors that are not precisely captured in the quantitative model (to account for borrower concentration).

The ratings that DBRS assigned to the Certificates 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 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.

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.

The applicable methodology is North American CMBS Rating Methodology (March 2016), which can be found on our website under Methodologies.

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.