Press Release

DBRS Publishes Rating North American CMBS Interest-Only Certificates Methodology

CMBS
March 15, 2017

DBRS, Inc. (DBRS) has today published its “Rating North American CMBS Interest-Only Certificates” methodology. Publication of this methodology follows the conclusion of the Request for Comments period that began on January 17, 2017. DBRS received and evaluated comments during the period, which did not result in changes to the final methodology.

This methodology, effective as of the date of this press release, supersedes reference to interest-only certificates (IO or IOs) in the “North American CMBS Rating Methodology,” published January 23, 2017.

The methodology covers IO or IOs issued in commercial mortgage-backed security (CMBS) multi-borrower conduits; agency, single-asset/single-borrower and commercial real estate collateralized loan obligations as well as resecuritization of real estate mortgage investment conduits. It reflects a movement from rating these certificates using their position in the waterfall to rating the referenced notional amount to account for a decline in payments as the transaction seasons and prepayments or losses occur. The DBRS IO rating is an opinion that addresses the likelihood that the notional amount of the IO will be adversely affected by collateral credit losses only. In CMBS transactions, credit losses are allocated first to the most junior CMBS bonds and, when realized, second to the principal amount of these bonds when written down.

For single-tranche, multiple-tranche and weighted-average coupon/stack IOs, the DBRS IO rating references the most junior rated class of bonds (the Reference Obligation), possibly adjusted upward by one notch. The rationale for adjusting one notch upward is driven by the default probability of the underlying collateral, which incorporates both term and refinance defaults. Because CMBS loans have both term and refinance default risks that are weighted one-third toward refinance risk, the DBRS IO rating recognizes the muted impact on IOs by notching up the IO rating by one notch from the Reference Obligation rating.

In conjunction with the finalization of the methodology, DBRS has reviewed all securities. There are a total of 526 securities that were reviewed resulting in the following rating actions: 182 confirmations, 293 downgrades, two upgrades and 48 discontinued-withdrawn ratings. The discontinued-withdrawn ratings are either a result of reduction in rated notional classes from losses that have occurred on vintage transactions or reference to non-rated first-loss piece only. The comprehensive list of rating actions can be found below.

DBRS expects to publish the required regulatory disclosures on a rolling basis over the next 30 days. Macro assumptions and sensitivity analysis will not be materially different from the past disclosures for these actions. Please contact DBRS should there be regulatory disclosures needed sooner and DBRS will make a best-effort attempt to accommodate the request and prioritize the publication of the requested regulatory disclosures.

The ratings assigned to 24 classes differ from the lower rating implied by this methodology. DBRS considers this difference to be a material deviation from the methodology and, in this case, the ratings reflect the opinion that the notional amount is less likely to be adversely affected by collateral credit losses. For the Canadian transactions listed below, support is provided by historical performance of Canadian CMBS, in which the total losses in the sector are less than 0.01% since inception in 1998. For the U.S. transactions listed below, support is provided by historical performance of the specific transactions and the current credit profile of the underlying loans.

-- Schooner Trust, Series 2006-6, Commercial Mortgage Pass-Through Certificates, Series 2006-6, Class XC
-- Merrill Lynch Financial Assets Inc., Series 2007-Canada 21 Commercial Mortgage Pass-Through Certificates, Series 2007-Canada 21, Class XC
-- Schooner Trust, Series 2007-7, Commercial Mortgage Pass-Through Certificates, Series 2007-7, Class XC
-- Real Estate Asset Liquidity Trust, Series 2007-1, Commercial Mortgage Pass-Through Certificates, Series 2007- 1, Class XC-1
-- Real Estate Asset Liquidity Trust, Series 2007-1, Commercial Mortgage Pass-Through Certificates, Series 2007- 1, Class XC-2
-- Institutional Mortgage Securities Canada Inc., 2011-1, Commercial Mortgage Pass-Through Certificates Series 2011-1, Class X
-- Institutional Mortgage Securities Canada Inc., 2012-2, Commercial Mortgage Pass-Through Certificates Series 2012-2, Class XC
-- Canadian Commercial Mortgage Origination Trust 2012-1, Commercial Mortgage Pass-Through Certificates, Series 2012-1, Class X
-- Institutional Mortgage Securities Canada Inc., Series 2013-3, Commercial Mortgage Pass-Through Certificates Series 2013-3, Class X
-- SCG 2013-CWP Hotel Issuer Inc., Series 2013-CWP, Commercial Mortgage Pass-Through Certificates, Series 2013-CWP, Class X
-- Institutional Mortgage Securities Canada Inc., Series 2013-4, Commercial Mortgage Pass-Through Certificates, Series 2013-4, Class X
-- Canadian Commercial Mortgage Origination Trust 2013-2, Commercial Mortgage Pass-Through Certificates, Series 2013-2, Class X
-- Institutional Mortgage Securities Canada Inc., Series 2014-5, Commercial Mortgage Pass-Through Certificates, Series 2014-5, Class X
-- Real Estate Asset Liquidity Trust, Series 2014-1, Commercial Mortgage Pass-Through Certificates, Series 2014-1, Class X
-- CMLS Issuer Corp., Series 2014-1, Commercial Mortgage Pass-Through Certificates, Series 2014-1, Class X
-- MCAP CMBS Issuer Corporation, Series 2014-1, Commercial Mortgage Pass-Through Certificates, Series 2014-1, Class X
-- Institutional Mortgage Securities Canada Inc., Series 2015-6, Commercial Mortgage Pass-Through Certificates, Series 2015-6, Class X
-- Real Estate Asset Liquidity Trust, Series 2015-1, Commercial Mortgage Pass-Through Certificates, Series 2015-1, Class X
-- Canadian Commercial Mortgage Origination Trust 2015-3, Commercial Mortgage Pass-Through Certificates, Series 2015-3, Class X
-- Real Estate Asset Liquidity Trust, Series 2016-1, Commercial Mortgage Pass-Through Certificates, Series 2016-1, Class X
-- Real Estate Asset Liquidity Trust, Series 2016-2, Commercial Mortgage Pass-Through Certificates, Series 2016-2, Class X
-- Institutional Mortgage Securities Canada Inc., Series 2016-7, Commercial Mortgage Pass-Through Certificates, Series 2016-7 Class X
-- GE Commercial Mortgage Corporation, Series 2004-C2, Commercial Mortgage Pass-Through Certificates, Series 2004-C2, Class X-1
-- GS Mortgage Securities Trust, 2010-C1, Commercial Mortgage Pass-Through Certificates Series 2010-C1, Class X

Notes:
The methodology providing DBRS's processes and criteria is available 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.

Ratings

225 Liberty Street Trust 2016-225L
BAMLL Commercial Mortgage Securities Trust 2016-SS1
BAMLL Trust 2011-FSHN
BBCMS Mortgage Trust 2017-C1
BBCMS Trust 2015-VFM
BCAP LLC 2013-RR4 Trust
BHMS 2014-ATLS Mortgage Trust
Bank of America Merrill Lynch Commercial Mortgage Trust 2016-UBS10
Bank of America Merrill Lynch Commercial Mortgage Trust 2017-BNK3
Bear Stearns Commercial Mortgage Securities Trust 2004-PWR5
Bear Stearns Commercial Mortgage Securities Trust 2007-PWR18
Bear Stearns Commercial Mortgage Securities Trust, Series 2007-TOP26
Bear Stearns Commercial Mortgage Securities Trust, Series 2007-TOP28
CD 2016-CD1 Mortgage Trust
CFCRE 2015-RUM Mortgage Trust
CMLS Issuer Corp., Series 2014-1
COMM 2004-LNB2
COMM 2013-CCRE10 Mortgage Trust
COMM 2013-CCRE11 Mortgage Trust
COMM 2013-CCRE6 Mortgage Trust
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  • US = Lead Analyst based in USA
  • CA = Lead Analyst based in Canada
  • EU = Lead Analyst based in EU
  • UK = Lead Analyst based in UK
  • E = EU endorsed
  • U = UK endorsed
  • Unsolicited Participating With Access
  • Unsolicited Participating Without Access
  • Unsolicited Non-participating

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