DBRS Confirms Ratings of Canadian Commercial Mortgage Origination Trust 2013-2

DBRS Limited (DBRS) confirmed the ratings of the following classes of Commercial Mortgage Pass-Through Certificates, Series 2013-2 issued by Canadian Commercial Mortgage Origination Trust, Series 2013-2 as follows:

-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X at A (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)

In addition, DBRS maintained the Positive trend for Class C. All other trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction. At issuance, the collateral for this transaction consisted of 42 loans secured by 49 properties with an issuance trust balance of $394.0 million. All loans in the pool were structured with five-year terms and are scheduled to mature in 2017 and 2018. As of the October 2017 remittance, 32 loans remain in the trust with an outstanding aggregate balance of $295.3 million, which represents a collateral reduction of 25.0%. Ten loans were repaid from the trust, with those repayments (combined with scheduled amortization) resulting in a principal paydown of $65.1 million since issuance. All but two of the remaining loans in the pool as of the October 2017 remittance are scheduled to mature by December 2018. Those two loans maturing this year represent 4.9% of the current pool balance and are scheduled to mature in December 2017. The largest loan in the pool, Playfair Residences (Prospectus ID#1, 11.8% of the current pool balance) is scheduled to mature in April 2018.

There are 26 loans, representing 71.3% of the current pool balance, that benefit from recourse guarantees from the respective sponsors. Historically, the Canadian commercial mortgage-backed security delinquency rate has remained relatively low, and loans with borrowers that have provided partial or full recourse guarantees have exhibited a higher likelihood for repayment at maturity as compared with loans with no recourse guarantee.

The top ten loans in the pool, representing 60.2% of the current pool balance, exhibited stable performance overall. According to YE2016 financials, those loans reported a weighted-average debt-service coverage ratio 1.56 times and debt yield of 10.5%, representing a year-over-year growth of 4.2%.

Eight loans, representing 21.4% of the pool, share a common sponsorship in affiliates of Northview Apartment REIT and True North Commercial REIT. To account for this increased concentration risk, DBRS applied a penalty to all loans in the pool, thereby elevating the probability of default in the analysis. As of the October 2017 remittance, there are no loans in special servicing or on the servicer’s watchlist; however, loans with an upcoming maturity date should already be on or should soon be placed on the watchlist as per the Commercial Real Estate Finance Council watchlist criteria, which states that loans are to be added to the watchlist 90 days prior to the maturity date.

Class X is an interest-only (IO) certificate that references multiple rated tranches. The rating assigned to Class X materially deviates from the lower ratings 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 is warranted as consideration was given for the actual loan, transaction and sector performance when a rating based on the lowest rated notional class may not reflect the observed risk.

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

DBRS has provided updated loan-level commentary and analysis for the top ten loans, in the DBRS Viewpoint platform. Registration is free. To view these and future loan-level updates provided as part of DBRS’s ongoing surveillance for this transaction, please register or log into DBRS Viewpoint at viewpoint.dbrs.com.

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.

The principal methodology is CMBS North American Surveillance, 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 initially, in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.