DBRS Assigns Provisional Ratings to Canadian Commercial Mortgage Origination Trust 4, Series 2018-4

DBRS Limited (DBRS) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2018-4 (the Certificates) issued by Canadian Commercial Mortgage Origination Trust 4:

-- 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 A (high) (sf)

All trends are Stable.

Classes A-2, B, C, D, E, F and G will be privately placed. Class X is notional.

The collateral consists of 53 fixed-rate loans secured by 53 commercial 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 NCF and their respective actual constants, DBRS did not identify any loans, based on the trust balances, as having a term DSCR below 1.15 times (x), which is 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 eight loans, representing 16.8% of the pool, having refinance DSCRs below 1.00x base on the trust balance, indicating elevated refinance risk.

Twelve loans (27.7% of the pool by loan balance) were considered by DBRS to have Strong sponsor strength, and 42 loans (79.1% 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, with 83.9% of the pool by loan balance amortizing on schedules that are 25 years or less and the remaining loans amortizing on schedules that are between 25 years and 30 years.

The transaction exhibits sponsor concentration as evidenced by only 41 sponsors and/or sponsor groups for the pool of 53 loans, and 17 loans (34.8% of the pool balance) have related borrowers to one or more loans within the pool. However, all these 17 loans have meaningful 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.

The DBRS sample included 34 of the 53 loans in the pool. Site inspections were performed on 30 of the 53 properties in the portfolio (75.1% of the pool by allocated loan balance). The DBRS sample had an average NCF variance of -4.5% from the Issuer’s NCF and ranged from -29.1% (Calgary Cross Dock) to +2.5% (5200 Dixie Industrial).

Class X is an 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 www.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.

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.

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.

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 for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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