DBRS Assigns Provisional Ratings to Institutional Mortgage Securities Canada Inc., Series 2016-7

DBRS Limited (DBRS) has today assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2016-7 issued by Institutional Mortgage Securities Canada Inc., Series 2016-7.
-- 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 38 fixed-rate loans secured by 60 properties. All loans in the transaction amortize for the entire term; 65.9% of the pool by loan balance amortizes on schedules that are 25 years or less, while 34.1% of the pool by loan balance will amortize on schedules that are between 25 years and 30 years. Seventeen loans (27.4% of the pool by loan balance) were modelled with Strong sponsor strength, and 12 loans (38.0% 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 its respective actual constants, DBRS did not identify any loans, based on the trust A-note balances, as having a debt service coverage ratio (DSCR) below 1.15 times (x), which is a threshold indicative of a higher likelihood of mid-term default. In addition, to assess refinance risk given the current low interest rate environment, DBRS applied its refinance constants to the balloon amounts, resulting in 32.6% of the pool, based on the trust A-note balance, having refinance DSCRs below 1.00x. The DBRS weighted-average (WA) Term DSCR and Going-in Debt Yield, based on the trust A-note balances, are 1.47x and 9.2%, respectively. The DBRS WA Refi DSCR and Exit Debt Yield, based on the trust A-note balances, are 1.22x and 12.0%, respectively.

DBRS sampled 29 loans, representing 85.9% of the pool by loan balance, and site inspections were performed on 47 properties, representing 85.5% of the pool by loan allocated balance. Of the sampled loans, three loans, representing 10.6% of the pool balance, were considered to be of Above Average property quality.

The rating assigned to Class G materially deviates from the higher rating implied by the quantitative model. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by the quantitative model that is a substantial component of a rating methodology; in this case, the assigned rating reflects expected dispersion of loan-level cash flows post issuance and qualitative loan-level factors that are not precisely captured in the quantitative model, specficially sponsor concentrations within the transaction.

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.