DBRS Finalizes Provisional Ratings on Wells Fargo Commercial Mortgage Trust 2019-C49

DBRS, Inc. (DBRS) finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2019-C49 issued by Wells Fargo Commercial Mortgage Trust 2019-C49:

-- 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 A-S at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class X-D at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class E-RR at BBB (low) (sf)
-- Class F-RR at BB (high) (sf)
-- Class G-RR at BB (sf)
-- Class H-RR at B (high) (sf)
-- Class J-RR at B (low) (sf)

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

The collateral consists of 64 fixed-rate loans secured by 71 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), six loans, representing a combined 7.9% of the aggregate pool balance, exhibited a DBRS Term debt service coverage ratio (DSCR) at or below 1.15 times (x), a threshold indicative of a higher likelihood of mid-term default. To assess refinance risk given the current low interest rate environment, DBRS applied its refinance constants to the balloon amounts. This resulted in 36 loans, representing a combined 57.4% of the aggregate pool balance, exhibiting a DBRS Refi DSCR at or below 1.00x and 21 loans, representing 35.8% of the pool, having a DBRS Refi DSCR below 0.90x. These credit metrics are based on the whole loan balances.

Only ten loans representing 8.9% of the aggregate pool balance are secured by properties that are either fully or partially leased to a single tenant. No individual single-tenant property accounts for more than 1.9% of the aggregate pool balance and the largest single-tenant property by proportion of pool balance (Tristone Flowtech USA) was sampled by DBRS. Loans secured by properties occupied by single tenants have been found to suffer higher loss severities in an event of default.

Term default risk is low, as evidenced by a relatively strong DBRS Term DSCR of 1.56x. When the cut-off balances were measured against the DBRS Stabilized NCF, 15 loans, representing 29.0% of the aggregate pool balance, exhibited a favorable DBRS Term DSCR equal to or greater than 1.75x. Excluding hospitality properties, 12 loans, representing 19.5% of the aggregate pool balance, exhibited a favorable DBRS Term DSCR of 1.75x or above.

The pool is also relatively diverse based on loan size, as the 64-loan pool has a concentration profile similar to a pool of 32 equally sized loans. The ten largest loans represent a combined 46.0% of the pool by allocated loan balance and the three largest loans represent 20.5% of the allocated loan balance. Excluding the top four loans, which represent a combined 25.7% of the pool, no single loan accounts for more than 4.6% of the pool by allocated loan balance.

The pool has a relatively high concentration of loans secured by non-traditional property types such as self-storage, hospitality and manufactured housing community (MHC) assets, which, on a combined basis, represent 34.5% of the pool by allocated loan balance across 23 loans. There are eight loans, representing a combined 21.9% of the pool by allocated loan balance, secured by hospitality properties; eight loans, representing a combined 8.8% of the pool by allocated loan balance, secured by self-storage properties; and seven loans, representing a combined 3.9% of the pool by allocated loan balance, secured by MHC properties. These assets are vulnerable to higher NCF volatility due to the relatively short-term nature of their respective leases compared with other commercial properties, which can cause NCF to deteriorate quickly in a declining market. Hospitality properties account for the second-largest property concentration in the pool. Eleven of these loans, representing 51.6% of all non-traditional property types in the pool by allocated loan balance, are structured without interest-only (IO) periods and benefit from full-term amortization. While not historically considered core property types, commercial mortgage backed security (CMBS) loans secured by MHC and self-storage properties have performed better than other property types over the past two decades.

Seven loans, representing a combined 51.7% of the pool by allocated loan balance, are structured with full-term IO periods. An additional 20 loans, representing 23.8% of the pool by allocated loan balance, are structured with partial IO terms ranging from 12 to 60 months. Of the 47 loans structured with either full or partial-term IO, seven loans, representing 15.1% of the pool and 20.0% of the IO concentration, are located in either urban or super dense urban markets with strong investor demand. Expected amortization for the pool is 7.6%, which is generally in line with recent conduit securitizations. Additionally, 17 loans, representing 24.5% of the pool by allocated loan balance, are scheduled to amortize by 15.0% or more.

The weighted-average DBRS Refi DSCR of 0.99x is indicative of significant refinance risk at the overall pool level. Fifteen loans, representing 28.7% of the pool by allocated loan balance, exhibit DBRS Refi DSCRs of 0.85x or less. Of the 15 loans exhibiting a DBRS Refi DSCR of 0.85x or less, nine loans, representing 16.0% of the pool and 55.7% of the identified concentration, are structured with going-in loan-to-value ratios of less than 65.0%. Many of these loans are located in primary markets with low cap rates, which depress traditional credit metrics.

Classes X-A, X-B and X-D are IO certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

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

For supporting data and more information on this transaction, please log into www.viewpoint.dbrs.com.

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 a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS’s methodology, DBRS used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is North American CMBS Multi-borrower Rating Methodology, which can be found on www.dbrs.com under Methodologies & Criteria. 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, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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.

DBRS, Inc.
333 West Wacker Drive, Suite 1800
Chicago, IL 60606 USA