DBRS Upgrades One Class of Waterfall Victoria Mortgage Trust, Series 2011-SBC2

DBRS Limited (DBRS) upgraded one class of the Mortgage-Backed Certificates Series 2011-SBC2 issued by Waterfall Victoria Mortgage Trust, Series 2011-SBC2 (the Trust) as follows:

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

DBRS also confirmed the following classes of the Trust:

-- Class A at AAA (sf)
-- Class M-1 at AAA (sf)
-- Class M-2 at AA (high) (sf)

All trends are Stable. DBRS does not rate Class M-4, Class M-5 or the notional bond, Class XC.

The rating upgrade reflects the overall strong performance of the transaction, with collateral reduction of 71.5% since issuance as of the February 2018 remittance. Since issuance, 82 of the original 175 loans have been repaid in advance of maturity, while 22 loans have been liquidated from the Trust. Loan repayments, scheduled amortization and proceeds from liquidated loans have significantly increased the credit support for the senior and mezzanine classes, with losses of $3.5 million contained to the junior Class M-5 (not rated by DBRS), which had a remaining balance of $4.3 million as of the February 2018 remittance. The transaction is composed of small-balance loans, with an average remaining loan balance of approximately $393,000 as of February 2018.

To date, 58 loans (84.9% of the pool) reported YE2016 net cash flow (NCF) figures, while five loans (6.8% of the pool) reported YE2015 NCF figures. The remainder of the loans have not reported financials since YE2014 or earlier. Based on the most recent year-end financials available, the top 15 loans, which account for 34.9% of the current pool balance, have a weighted-average debt yield of 10.7%.

As of the February 2018 remittance report, there are three loans in special servicing, representing 3.3% of the pool. DBRS analyzed these loans while assuming a 100.0% probability of default (POD) and an elevated loss scenario. There are also 36 loans on the servicer’s watchlist, representing 50.0% of the outstanding pool balance. These loans remain current but are being monitored for various issues, including low debt service coverage ratios, low occupancy rates and the borrower’s failure to provide updated financials. Although the watchlist concentration is high, this has generally been the case for the life of the transaction and is not uncommon for pools composed of small-balance loans that are secured by properties with the potential for an above-average cash flow volatility. DBRS analyzed the loans on the servicer’s watchlist with a cash flow stability penalty and an inflated haircut to the in-place cashflows to increase the POD.

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

Notes:
All figures are in U.S. dollars unless otherwise noted.

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.

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 under Related Documents 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.

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