DBRS Finalizes Provisional Ratings on BANK 2018-BNK13

DBRS, Inc. (DBRS) finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2018-BNK13 issued by BANK 2018-BNK13:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A‑5 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at A (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class X-D at BBB (sf)
-- Class X-E at BB (sf)
-- Class X-F at B (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

All trends are Stable. The Class X-A, X-B, X-D, X-E and X-F balances are notional. Classes X-D, X-E, X-F, D, E and F have been privately placed.

The collateral consists of 62 fixed-rate loans secured by 80 commercial and multifamily properties. The transaction is a sequential-pay pass-through structure. The trust assets contributed from five loans, representing 24.3% of the pool, are shadow-rated investment grade by DBRS. Proceeds for the shadow-rated loans are floored at the respective rating within the pool. When 24.3% of the pool has no proceeds assigned below the rated floor, the resulting pool subordination is diluted or reduced below the rated floor. The conduit pool was analyzed to determine the 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 stabilized net cash flow and their respective actual constants, two loans, representing 9.5% 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 14 loans, representing 49.3% of the pool, having refinance DSCRs below 1.00x and eight loans, representing 33.9% of the pool, with refinance DSCRs below 0.90x. These credit metrics are based on whole-loan balances.

Four of the 15 largest loans in the pool – 1745 Broadway, Pfizer Building, Fair Oaks Mall and 181 Fremont Street – exhibit credit characteristics consistent with shadow ratings of BBB (high), AAA, A (high) and AA, respectively. These loans represent 22.7% of the transaction balance. Fifteen loans, representing 31.4% of the pool, are located in urban markets with increased liquidity that benefit from consistent investor demand, even in times of stress. Urban markets represented in the deal include New York, Las Vegas and San Francisco.

DBRS did not deem any of the properties securing the loans to be Below Average or Poor property quality. Only two loans, Alvarado Sunset Apartments and Palatka Oaks Apartments, were considered Average (-) and represent a combined 1.0% of the DBRS sample balance. Furthermore, ten loans comprising 55.7% of the DBRS sample balance were either considered Above Average or Average (+). The remaining loans were classified as Average. Additionally, only four loans, totaling 11.3% of the transaction balance, are secured by properties that are either fully or primarily leased to a single tenant. The largest of these loans are Pfizer Building and 181 Fremont Street, which combined represent 9.2% of the pool balance and 81.5% of the single-tenant concentration, both of which are shadow-rated investment grade. The Pfizer Building and 181 Fremont Street collateral serve as the mission-critical company headquarters for Pfizer Inc. and Facebook, Inc., respectively. Loans secured by properties occupied by single tenants have been found to suffer higher loss severities in an event of default.

Twenty-three loans, representing 64.1% of the pool, including nine of the largest ten loans, are structured with interest-only (IO) payments for the full term. An additional seven loans, representing 7.5% of the pool, have partial IO periods remaining ranging from 12 months to 60 months. However, the DBRS Term DSCR is calculated by using the amortizing debt service obligation and the DBRS refinance (Refi) DSCR is calculated by considering the balloon balance and lack of amortization when determining refinance risk. DBRS determines probability of default (POD) based on the lower of DBRS Term or Refi DSCR; therefore, loans that lack amortization will be treated more punitively. Further, this concentration includes two shadow-rated loans – 1745 Broadway and 181 Fremont Street – which total 12.3% of the pool, both of which are full-term IO.

The pool is relatively more concentrated than recent transactions, with the top ten loans accounting for 57.2% of the pool. The deal’s concentration profile is equivalent to that of a pool of 23 equal-sized loans, which is less than favorable. This is mitigated by the fact that a concentration penalty was applied given the pool’s lack of diversity, which increases each loan’s POD. While the transaction is concentrated in the largest ten loans, two of the top three loans, comprising 8.4% of the transaction balance, are shadow-rated investment grade by DBRS.

Classes X-A, X-B, X-D, X-E and X-F are IO certificates that reference a single rated tranche or multiple rated tranches. The IO ratings mirror 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 U.S. 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 principal methodology is North American CMBS Multi-borrower Rating 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 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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.