DBRS Upgrades Two Classes and Confirms Two Classes of Waterfall Victoria Mortgage Trust, Series 2011-SBC2

DBRS, Inc. (DBRS) has today upgraded two classes of the Mortgage-Backed Certificates Series 2011-SBC2 issued by Waterfall Victoria Mortgage Trust, Series 2011-SBC2 as follows:

-- Class M-2 to AA (high) (sf) from AA (low) (sf)
-- Class M-3 to A (high) (sf) from A (low) (sf)

DBRS has also confirmed the ratings of Class A and Class M-1 at AAA (sf). All trends are Stable. DBRS does not rate Class M-4, Class M-5 or the notional bond, Class XC.

The rating upgrades reflect the stable performance of the underlying collateral, coupled with the increased credit enhancement to the bonds from loan liquidations, early repayments and amortization. Since issuance, 95 of the original 175 loans have either paid off in advance of maturity or been liquidated from the trust. As a result, the total collateral reduction has increased to 65.2% as of the February 2017 remittance. The transaction is composed of small balance loans, as the average outstanding loan balance is approximately $425,000. To date, 20 loans have been liquidated from the pool at a combined realized loss of approximately $3.4 million that has been contained to the unrated Class M-5. According to the most recent year-end financial reporting, the top 15 loans, accounting for 36.0% of the current pool balance, have a weighted-average debt yield of 10.8%.

As of the February 2017 remittance report, there are four loans in special servicing, representing 3.3% of the pool. DBRS analyzed these loans assuming a 100.0% probability of default and elevated losses. There are also 42 loans on the servicer’s watchlist, representing 53.8% of the outstanding pool balance. These loans remain current but are being monitored for low debt service coverage ratios, low occupancy rates and borrower failure to provide updated financials among other triggers defined in the CREFC investor reporting package.

The rating assigned to Class M-3 materially deviates from the higher rating implied by the quantitative results. 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 results that is a substantial component of a rating methodology. The deviation are warranted given the sustainability of loan performance trends has not been demonstrated.

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 methodologies are North American CMBS Rating Methodology (January 2017) and CMBS North American Surveillance (December 2016), which can be found on our website under Methodologies.

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