DBRS Assigns Provisional Ratings to Real Estate Asset Liquidity Trust, Series 2017

DBRS Limited (DBRS) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2017 (the Certificates) issued by Real Estate Asset Liquidity Trust, Series 2017:

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

All trends are Stable.

Classes D2, E, F and G will be privately placed. Class X is notional.

The collateral consists of 71 fixed-rate loans secured by 111 commercial and multifamily properties. The transaction is a sequential-pay, pass-through structure. 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 (NCF) and their respective actual constants, seven loans, representing 12.9% of the total pool, had a DBRS term debt service coverage ratio (DSCR) below 1.15 times (x), a threshold indicative of a higher likelihood of mid-term default. Additionally, to assess refinance risk given the current low interest rate environment, DBRS applied its refinance constants to the balloon amounts. This resulted in 27 loans, representing 51.8% of the pool, having refinance DSCRs below 1.00x, an indication of elevated refinance risk.

Twenty loans (24.5% of the pool by loan balance) were considered by DBRS to have Strong sponsor strength, and 38 loans (63.9% 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. All loans in the transaction amortize for the entire term: 44.7% of the pool by loan balance amortizes on schedules that are 25 years or less, including one loan (0.5% of the pool) that fully amortizes during the loan term. The remaining loans amortize on schedules that are between 25 years and 30 years.

The transaction exhibits significant sponsor concentration as evidenced by only 37 sponsors and/or sponsor groups for the pool of 71 loans, and 40 loans (58.5% of the pool balance) have related borrowers to one or more loans within the pool. However, 21 of these loans (42.9% of the pool) have meaningful full recourse to the sponsor, and none of the related sponsors were considered by DBRS to be weak or below average in terms of net worth or liquidity. Thirteen loans, representing 21.5% of the pool, are secured by properties that are leased to a single tenant, and three of these loans are in the top ten. Loans secured by properties occupied by single tenants have been found to suffer from higher loss severities in the event of default. To mitigate, DBRS assumed a higher loss profile for the loans secured by single-tenant assets than it did for the loans secured by multi-tenant assets.

The DBRS sample included 44 of the 71 loans in the pool. Site inspections were performed on 63 of the 111 properties in the portfolio (74.7% of the pool by allocated loan balance). The DBRS sample had an average NCF variance of -3.9% from the Issuer’s NCF and ranged from -19.4% (U-Haul Main Street) to +16.9% (U-Haul Sur Armand-Viau).

Class X is interest-only (IO) certificate that references multiple rated tranches. The IO rating mirrors the lowest-rated reference tranche adjusted upward by one notch if senior in the waterfall.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

For more information on this transaction and supporting data, please log into viewpoint.dbrs.com. DBRS will continue to monitor this transaction with periodic updates provided in the DBRS Viewpoint platform.

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

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), 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 require due diligence services outlined in Form-15E, DBRS did use the Data File outlined in the Independent Accountant’s Report in its analysis to determine the ratings.

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 principal methodology is North American Multi-borrower CMBS Methodology, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs. com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.